Autumn Budget Preview 2025

As Westminster fixates on the latest row over alleged Chinese espionage, the story that really matters for most is unfolding quietly elsewhere. Chancellor Rachel Reeves is preparing her Autumn Budget for November 26 and has admitted on the record for the first time tax rises and spending cuts are on the table.

Her message this week was clear: those with the "broadest shoulders should pay their fair share of tax.” But the reality is the pain could be far wider. Reeves has previously insisted she will not raise taxes that fall on working households, including income tax, National Insurance, or VAT. Yet with options increasingly limited, she may now be forced to revisit those pledges: with the Institute for Fiscal Studies warning the hole in the public finances is £22 billion deep, only big measures will do. Measures to ease cost of living pressures, such as mooted funding to reduce energy bills, would only add to the revenue the Reeves would have to find. The Government has already tried and failed to save £5 billion on welfare.

There are only a handful of measure which raise multiple billions at a time. Putting 1p on the basic rate of income tax raises about £8 billion. Increasing VAT to 22.5% could raise as much as £15 billion. Further changes to National Insurance or amending pension tax reliefs can also raise big sums – but all these changes come with huge downsides as they variously hit people’s cost of living, drive up inflation even higher or risk sending vital workers like doctors out on strike. None of this is good for growth – supposedly Reeves’ top priority.

Politically, the Chancellor is walking a tightrope. Shrinking headroom and a large fiscal gap mean the trade-off is stark: raising taxes on working households risks breaking promises and damaging Labour’s credibility. On the other hand, avoiding those measures could mean tighter spending, slower growth, and a dampening of the economy’s potential. Either path carries immense political and economic costs.

Viewed cooly from outside the Treasury, the goal has to be to make choices which will look correct in three years’ time when the next General Election arrives, even if that means more short term political pain. 

Unfortunately for the Chancellor, much of politics will be more interested in whether the Budget looks smart three days or three weeks after the Budget, long before it’s ever implemented.

Reeves has to simultaneously take the correct hard choices and then have the political steel to stand behind them. It’s much easier said than done, but may define the survival of the Government.