Record Tax Burden Hits Taxpayers to Increase Benefits
Rachel Reeves raised taxes by £26bn to an all-time high today in the Autumn Budget. The tax burden will reach 38% of GDP by the end of the parliament. These tax increases are in addition to the £40bn tax hike in Ms Reeves’ first Budget last Autumn. The additional tax revenue is to cover extra spending of £11.3bn and to double fiscal headroom to help cover any future economic shocks to £22bn. The chancellor hopes this additional buffer will reassure investors and maintain market confidence in the UK. The gilt market was steady in afternoon trading with the interest rate on 10-year gilts at 4.5%.
Mishandled Budget Preparations
Having selected the latest possible date for an autumn Budget, the months leading up to the Budget have been disorderly with speculation, rumours and multiple policy U-turns. This has undermined the credibility of the chancellor and further weakening the authority of Keir Starmer as prime minister. The Office for Budget Responsibility (OBR) accidentally released Budget documents about 45 minutes before the chancellor’s speech further adding to the impression of chaos.
Budget Objectives present Challenges
Rachel Reeves faced multiple objectives with her Budget. On the one hand, Ms Reeves needed to reassure markets of the government’s financial competence with regard to sound economic management by balancing the books. In simple terms, this is ensuring tax receipts cover public expenditure taking account of projections for growth, productivity and inflation. This is important so the government can borrow at competitive interest rates to finance its debt and retain confidence in the UK as an attractive place to do business.
On the other hand, the chancellor is faced with restless back bench Labour colleagues who bemoan dismal opinion poll ratings having won a landslide election victory only last year. Many Labour MPs demand higher government spending on welfare and greater redistribution of wealth to less affluent citizens. In addition to these objectives, the chancellor faces increased cost pressures from the need for higher defence spending, climate change and political risks such as US trade tariffs.
The backdrop to the Budget was difficult – a low level of economic growth, inflation consistently above the Bank of England’s target of 2%, rising unemployment and interest rates squeezing living standards and discouraging investment.
Gloomy Economic Outlook
The UK economy is expected to grow slowly – by 1.5% this year and 1.4% in 2026, a downgrade from 1.9% previously forecast. Worryingly, the OBR has cut its productivity forecast for the UK from 1.3% to 1%. These low growth and productivity projections matter since they determine future tax receipts and reflect wealth generation driving living standards.
Whilst the government points to Brexit and the Pandemic as negatively impacting UK economic performance, new legislation strengthening workers’ rights and clamping down on migration also act as a brake on growth. The housing market is fretting too about the implementation of the Renters’ Rights Act in 2026 with many landlords planning to exit the market; this has contributed to the OBR downgrading future house price growth, along with the extra tax on rental income announced in the Budget.
Key Budget Tax Announcements
- Headline rates of income tax for earnings, CGT, VAT, corporation tax and national insurance remain unaltered. Whilst not in the Budget speech, there is no change on pension tax relief on contributions, pension tax-free cash, or inheritance tax on gifting.
- Personal tax thresholds have been frozen for a further three years until April 2031 raising £8.3bn. This so-called ‘fiscal drag’ is a powerful stealth tax and will bring nearly 800,000 more individuals into basic rate tax and around 1.7m more individuals into higher rate tax by the end of the parliament.
- Income tax on dividends, savings and property income will increase by 2%. This means dividends will be taxed at 10.75% basic rate and 35.75% higher rate (no change to the additional rate tax on dividends which remains 39.35%), whilst savings and property income will be taxed at 22% basic rate, 42% higher rate and 47% additional rate tax. This is expected to bring in £2.1bn tax.
- Whilst stocks and shares ISAs will continue to benefit from a £20,000 contribution limit, cash ISAs will be restricted to £12,000 pa from 2027, except savers over age 65 will retain a £20,000 cash ISA limit.
- Salary sacrifice pension contributions will be limited to £2,000 pa from 2029, above which National Insurance will be payable by both employers and employees raising £4.7bn tax.
- CGT relief will be halved to 50% for Employee Share Ownership Trusts raising £900m tax.
- Venture Capital Trusts (VCT) income tax relief will reduce from 30% to 20% from April 2026.
- Business Relief and Agricultural Relief for inheritance tax can be transferred between spouses helping business owners and farmers pass assets to family.
- New listings on the London Stock Exchange will benefit from 3 years exempt from Stamp Duty on share trading.
- Council tax will be increased significantly for homes valued at £2m+. A surcharge of between £2,500 and £7,500 pa will apply depending on property value raising £400m tax.
- The freeze on fuel duty will end in 2026 increasing petrol and diesel prices. A new 3 pence per mile tax will be introduced for Electric Vehicles and 1.5 pence per mile for hybrid vehicles from 2028 raising £1.4bn.
- Gambling taxes will be increased raising £1.1bn.
- Energy bills should reduce by approx. £150 as the Green levy is removed and instead funded out of general taxation.
- Tourism taxes will be introduced.
- Soft drinks levy extended to high-sugar drinks and milkshakes.
Government Spending and other Announcements
- Government expenditure on benefits will increase by £16bn by 2029/30. The headline announcement was that the two-child benefit cap will be removed from April 2026 and social security benefits will increase by inflation.
- National debt will hit £3 trillion by 2030/31 or £3.5 trillion under the previous definition with interest costs rising from £114bn to £140bn by 2030/31.
- Defence spending will be set at 2.6% GDP.
- State pensions will continue to benefit from the triple lock and will increase by 4.8%. Anyone in receipt of just a state pension from April 2027 will not be subject to small tax bills; it will be handled by simple assessment.
- National wages will be increased by between 4.1% and 8.5% depending on age.
- Regulated rail fares are frozen.
- VAT will apply to ride-hailing apps such as Uber and Bolt, dubbed a ‘taxi tax’.
- The Docklands Light Railway (DLR) will be extended to Thamesmead in southeast London.
Tax Changes Announced Previously
- Tax thresholds are frozen until 2028, whilst the inheritance tax threshold is frozen until 2030.
- Pensions will be subject to inheritance tax from 2027.
- CGT Business Asset Disposal Relief rate will increase from 14% to 18% from April 2026.
- Business Relief and Agricultural Relief for inheritance tax will be capped at £1m from April 2026.
- Making tax digital for income tax starts in April 2026 requiring quarterly reporting for the self-employed and landlords. This is a major change and will add a significant burden in terms of paperwork, reporting and accountancy costs.
- Corporation tax capped at 25% until the end of the parliament.
UK Outlook Remains Challenging
Rachel Reeves accused the previous Conservative government of being a ‘rudderless ship, heading to the rocks.’ As The Economist has recently commented, these charges could arguably be levelled at the current chancellor too. The political circus leading up to the Budget hit investor sentiment and eroded public support leading to the conclusion that the government lacks a clear strategy or plan for the UK. Admittedly, Ms Reeves made life difficult for the government at the last election with the commitment not to raise the four main taxes bringing in around 75% tax receipts.
Following speculation regarding a possible leadership challenge to Mr Starmer, the impression is that the Budget was aimed primarily at winning over wavering Labour MPs and securing his and Ms Reeves’ positions in the short term, rather than tack the country towards greater longer term prosperity.
In her speech replying to the chancellor’s Budget, Kemi Badenoch, Leader of the Opposition described it as a ‘Budget for Benefit Street paid for by working people.’ The number of benefit claimants has soared, now over 8.3 million people in receipt of Universal credit alone. Whilst tax thresholds are frozen for working people and pensioners, benefits are broadly indexed by inflation implying that work is not rewarded by the government.
Of course, there are no easy answers to the dilemma of how to boost economic growth and increase productivity which are both ultimately required to improve living standards in the UK. However, it seems clear the way forward should be to reward work and incentivise entrepreneurship rather than increase reliance on the state.
Winners and Losers from the Budget
Winners
- State pensioners: increase of 4.8% in State pension from April 2026 and the triple lock remains intact.
- Benefit claimants: Most benefits will increase by inflation. The two-child benefit cap will be removed. The overall benefits bill is expected to increase significantly in the coming years.
- Low paid workers: The minimum wage will increase by 4.1% and for 18-20 years by 8.5% to £10.85 per hour. However, these wage increases may see a reduction in job opportunities as employers seek to manage their wage bill.
- Trains, energy bills and prescriptions: Regulated train fares and prescription costs are frozen, whilst energy bills should reduce with the Green levy removed.
- Farmers and Business owners: Business Relief and Agricultural Relief for IHT will be transferable between spouses. This will help to mitigate to some extent the cap on this relief to £1m from April 2026.
Losers
- Workers will be worse off as a result of the freeze in tax thresholds dragging more people into both basic rate and higher rates of tax. This will effect income tax, CGT and IHT.
- Pension contributions via salary sacrifice: workers contributing over £2,000 pa into their pension via a salary sacrifice arrangement will incur NICs from 2029.
- Expensive properties: A Council tax surcharge will make living in a property worth over £2m significantly more expensive from 2028.
- Savers: Income tax on savings will increase by 2% from 2027 and the cash ISA limit cut to £12,000 (except for the over-65s).
- Investors: Income tax on dividends will increase by 2% from April 2026. This will also hit company directors drawing profits from their businesses. It seems at odds with the government objective of encouraging retail investors to invest in equities, as well as the objective of supporting small businesses to thrive.
- Landlords: Income tax on rental income will increase by 2% from 2027. In addition, the Renters’ Rights Act strengthens tenants’ rights.
- Drivers: The end of the freeze on fuel duty and the new pay per mile for EVs and hybrid vehicles.
- Holiday makers, taxi drivers, purveyors of sugary drinks including milkshakes, and gambling firms: new taxes will add to the cost of these products and services.
Actions to Consider
The record tax burden on UK taxpayers requires an increased focus on tax planning. This includes making maximum use of tax allowances and basic rate tax bands; utilising ISAs where possible to shelter capital from income tax and CGT; making pension contributions to mitigate income tax and grow capital free of tax. For more affluent investors with a higher risk appetite, specialist tax-efficient investments such as Venture Capital Trusts may be worth considering.
Flexibility is also important in any financial planning. The current government is unpredictable and even after today further tax rises or changes cannot be ruled out.
From an investment perspective, our focus is to invest globally. This continues to make sense in light of today’s Budget. Whilst there are some excellent businesses in the UK which are attractive for investors, other parts of the world are more supportive of business and enterprise with less regulation, as well as lower rates of tax.
As always, my team and I are pleased to provide further information and advice as required on a personal basis. Matthew Clark, 26 November 2025.
Please note that the content on this page is based on our understanding and the available information; we cannot be held responsible for any errors, and you should not act on the basis of the information in these articles, nor do they constitute investment or tax advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch via telephone at 01392 875500 or email at info@SeabrookClark.co.uk.