Autumn Budget 2025: How It Affects You

After weeks of intense speculation, Rachel Reeves delivered her Autumn Budget today. Just half an hour beforehand, the OBR Report was published early in error, described as “chaos”.

Before The Chancellor stood to speak, deputy speaker, Nusrat Ghani, gave warning to the Government at length for the level of speculation which has preceded this Budget, describing it as ‘extensive briefing to the media’, even before the OBR report leak.

Chancellor Rachel Reeves began her statement by acknowledging the early release of the OBR report – which detailed the contents of the Budget – calling it “deeply disappointing”. She added that the forecaster has already made a statement taking “full responsibility” for the error.

The statement from the Office for Budget Responsibility (OBR) said:

“A link to our economic and fiscal outlook document went live on our website too early this morning. It has been removed. We apologise for this technical error and have initiated an investigation into how this happened. “We will be reporting to our oversight board, the Treasury, and the Commons Treasury Committee on how this happened, and we will make sure this does not happen again”.

The pound rose briefly against the US dollar after the OBR published its Budget forecasts earlier than expected, reaching just under $1.32. However, the moves were small, and the pound has since fallen back to a lower level than when markets opened this morning.

Prior to the leak, the chancellor was expected to outline measures addressing a significant public funds deficit, and was expected to establish a robust financial reserve, aiming to reduce future demands on taxpayers, including tax increases designed to ‘stabilise the nation’s finances’.

The OBR says the Budget will raise taxes by £26bn by 2029/30, bringing the tax take to an all-time high of 38% of GDP in 2030/31. The Chancellor vowed to beat the productivity forecast saying the OBR is reducing expectations for productivity growth by 0.3 percentage points to 1% by the end of the forecast.

The OBR says this will mean £16bn less in tax revenue by 2030. She attributed this to the Conservative “legacy” and adds it is not “Britain’s destiny”. Reeves continued to say the Government beat forecasts this year “and we will beat them again”, rebuilding our economy and adding that working people demanded and deserve change after 14 years of Conservative Government.

She lists “stability, investment and reform as a platform which British ambition can finally get moving again”, vowing ‘no return to austerity’, to ‘cut the cost of living’ and to ‘bring down inflation and immediate relief for families’.

Economic Growth: At a Glance

Headroom to more than double

• Lower growth is forecast, with real GDP forecast to grow by 1.5 per cent on average over the forecast, 0.3 percentage points slower than we projected in March, due to lower underlying productivity growth.
• Reeves now confirmed to MPs that she will “more than double” the headroom against her stability rule to £21.7bn, by cutting debt and borrowing.

UK economic growth forecasts downgraded

• The OBR have upgraded Britain’s growth this year from 1% to 1.5%
• Borrowing will fall as a share of GDP in every year of the forecast and will meet our stability rule a year early.
• Inflation will be down 0.4% next year. Reeves attributes this decrease to Labour’s action on bills and prices.
• In 2026, the economy is now expected to expand by 4%, below a previous forecast of 1.9%
• For 2027, GDP is estimated to expand by 6% against March’s estimate of 1.8%
• In 2028, GDP is forecast to rise by 5%. In March, the OBR estimated it would increase by 1.7%
• In 2029, the economy will expand by 5%, not 1.8% as previously thought

National debt will be £2.6tn this year

• The UK’s net financial debt this year will be £2.6tn, meaning “one in every £10 the Government spends is on debt interest.”
• Fiscal rules will “get borrowing down while supporting investment”.
• By 2028/2029 the budget balance “moves into a surplus of £3.9bn”.
• The Budget raises taxes by £26bn in 2029-30

Inflation set to be higher than previously forecast

• It is expected that inflation reach 3.5% for this year
• Higher than the OBR estimated in March when it predicted a 3.2%.
• It has also lifted next year’s forecast from 2.1% to 2.5%.
• The OBR maintains its 2% estimate for 2027 and the following two years.

How it will affect you and your business

Freezing Tax Thresholds

The chancellor is raising thresholds on personal tax and employer National Insurance contributions thresholds for three years from 2028/29, raising £8 billion. The Tax burden is to hit record high by 2030, taking it to an all-time high of 38% of GDP in 2030/31.

Maintaining frozen tax bands will affect working people, and Reeves is “asking everyone to make a contribution”. She confirmed that income tax and National Insurance thresholds will remain frozen at their current level until 2031 – an extra 3 years on the Conservatives freeze, due to end in 2028.

The OBR estimates that 780,000 more people will be brought into paying income tax in 2029/30, largely as a result of the extensions to the freezes.

Income tax thresholds extended freeze

An extension to the freeze of the main income tax thresholds has been announced, applying until 5 April 2031. That means the following remain fixed for longer:

• Personal allowance: £12,570
• Basic rate: 20% on income from £12,571 to £50,270 (i.e. £37,700 of taxable income in the basic band)
• Higher rate: 40% on income from £50,271 to £125,140
• Additional rate: 45% on income above £125,140

Employer NIC – secondary threshold freeze

The Class 1 employer NIC secondary threshold (the point at which employers start paying NIC on employee salaries) is currently £5,000 per year and will now also be held at this level from 2028–29 through to 2030–31.

Plan 2 student loan repayment threshold frozen

For Plan 2 student loans (post-2012 undergraduates) the current annual repayment threshold for 2025/26 is £28,470. This threshold will also be frozen from 2027-28 to 2029-30.

Dividend tax – 2 percentage point increase

From 6 April 2026 (tax year 2026/27), dividend tax rates rise by 2 percentage points for basic and higher rate taxpayers; the additional rate stays the same.

Dividend tax rates (after the £500 dividend allowance):

For an owner-managed company shareholder receiving £37,700 of dividends in the basic rate band, the extra 2% tax results in an increase of £754 additional tax per year.

Savings income – tax rates up by 2 percentage points

From 6 April 2027, the tax rates applied to savings interest (e.g. bank interest) will increase by 2 percentage points across all bands:

It is important to note that the savings allowances are unchanged.

Starting rate for savings:

• Up to £5,000 of interest can still be taxed at 0%, if non-savings income is below the personal allowance plus this band.

Personal Savings Allowance (PSA):

• Basic rate taxpayers: £1,000 tax-free interest
• Higher rate taxpayers: £500 tax-free interest
• Additional rate taxpayers: £0 PSA

Anyone with non-savings income that does not exceed £12,570 can still benefit fully from the starting savings rate and PSA.

New separate tax rates for property income (landlords)

From 6 April 2027, property income will be taxed under its own set of rates, similar to how savings and dividends are treated.

The new property income tax rates will be:

• Property basic rate: 22%
• Property higher rate: 42%
• Property additional rate: 47%

In addition to the above rates, the following should be considered.

• Separate “property” banding: These rates apply specifically to property income, even though it still feeds into overall income tax calculations.
• Finance cost relief (e.g. mortgage interest): will be given at the new property basic rate of 22%, rather than the standard 20%.

Pension contributions to be taxed above £2,000

From April 2029, the government will cap the National Insurance advantage of pension salary sacrifice at £2,000 per year per employee.

The first £2,000 of pension contributions via salary sacrifice will continue to attract NI relief for both employer and employee.

Any contributions above £2,000 made through salary sacrifice will be treated like other employee pension contributions for NIC purposes – full employee and employer NI will be payable on the excess.

Reforms to cash ISAs

The chancellor announced reforms to the Individual Savings Accounts (ISA) system, a savings and investment product allowing you to earn tax-free returns. This is to encourage people to invest here in the UK.

The full £20,000 allowance will remain, but £8,000 of this will now be designated exclusively for investment purposes, lowering the allowance to £12,000. Over 65s, though, will retain the full cash allowance of £20,000.

Corporation Tax

The main rate of Corporation Tax remains at 25% and the Government has committed to keeping that cap for the duration of the current parliament.

Reduced Capital Gains Tax Relief 

With immediate effect there will be a reduction in the capital gains tax relief for sales to Employee Ownership Trusts (EOTs), cutting the benefit from 100% to 50%. This means that only half of any gain from such disposals will now be tax-free, increasing the taxable portion and effectively raising the CGT liability for those transactions. Other core CGT rates for standard asset disposals remain unchanged.

Writing-down allowance (capital allowances) – main rate cut

The Budget also announces an intention to reduce the main writing-down allowance (WDA) rate for plant and machinery from 18% to 14% from 1 April 2026 (for companies; 6 April 2026 for income tax cases).

Minimum Wage Increase

This was confirmed on Tuesday that millions of people are set to get a pay rise from April, due to an increase in minimum wage.

The hourly rate for over-21s will rise by 50p (4.1%) to £12.71, with workers aged 18-20 seeing an 85p rise (8.5%) to £10.85, and under-18s and apprentices getting 45p more (6.5%) to £8 an hour.

The Government said this will increase gross annual earnings of a full-time worker on the rate by £900, benefiting around 2.4 million low-paid workers.

Two child benefit cap to be lifted

Half a million children could be lifted out of poverty with reforms to benefits policies. The chancellor says she came into politics because she believes every child “deserves an equal chance” to achieve their goals. The “biggest barrier” to this is child poverty, she says.

She announced today a “fully costed and fully funded” removal of the two-child limit, coming into effect in full from April.

The two-child benefit cap “within universal credit” is being lifted from April 2026. “Its removal costs £2.3 billion in 2026- 27 and £3.0 billion in 2029-30,” the OBR says.

New tax for electric vehicles

The chancellor announced a new electric vehicle excise duty. This will be payable each year from 2028, alongside vehicle excise duty at 3p per mile for electric cars and 1.5p for plug-in hybrids.

From April 2028, a new per-mile road charge is being introduced alongside standard Vehicle Excise Duty (VED):

• Electric vehicles (EVs): 3p per mile
• Plug-in hybrids: 1.5p per mile

It is not 100% clear on how this will work logistically, but it appears that drivers will pay an estimated charge based on anticipated mileage – if actual is lower, a credit will be carried forward to the next year, if the actual is higher then there would be a balancing charge. Further detail on this will follow. The changes are anticipated to take place from April 2028.

According to Reeves, it will allow the Government to double road maintenance funding in England and offer a further £200m for a rollout of electric vehicle charging points.

She is also set to add £1.3bn to a grant that knocks up to £3,750 off the price of an electric vehicle as part of a package that will also see £200m go towards the rollout of charging points.

Mansion Tax

After several versions of this were floated in the build up to the budget, it has been confirmed that this will be an annual charge. The below is from the current proposed structure in the budget finer details:

It was announced that this is levied on owners and collected alongside council tax. The new surcharge will raise over £400m by 2031 and will be charged on fewer than the top 1% of properties.

Other notable points

Inheritance Tax (IHT)

Extension of relief so that property transfers between spouses/civil partners of up to £1m can benefit from enhanced IHT allowances (details to follow in draft legislation).

Low-value imports (£135 de minimis)

Customs duty rule to be removed. The tariff exemption for imports under £135 will be abolished by March 2029, following consultation, removing the current advantage for some overseas online retailers.

Sugar Tax

Pre-packaged milkshakes and lattes will be subject to the sugar tax, ending the exemption for milk-based beverages from the existing tax on sugary drinks, from 2028, a move welcomed online by Jamie Oliver. This will not affect drinks made on site in cafes and restaurants.

Fuel duty to be frozen until next September

Fuel duty will be frozen at its current rate until September 2026. The chancellor commits to extending the 5p cut in fuel duty.

Household energy bills to be cut

Reeves is scrapping the Eco energy scheme, which she says will cut £150 from the average household energy bill from April.

Household gas and electricity costs will be lowered through cuts to green levies on energy bills, the OBR report says, costing around £2.3bn.

Tobacco & Vaping

Further increases and reforms to duties on tobacco and vaping products, and extension/adjustment of the sugar levy to certain additional drinks.

Stamp duty

Stamp Duty on new UK company listings to be removed for three years to encourage firms to list in London.

Gambling Tax Reforms

A reform to gambling taxes has been announced. Remote Gaming Duty is being raised from 21% to 40%. Duty on online betting is increasing from 15% to 25%.

No changes have been made to in-person gambling or horse racing. Bingo Duty is also being entirely abolished from April 2026.

The chancellor says her reforms to gambling tax will raise over £1bn per year by 2031.

Benefits

The chancellor says that the Labour Government has brought back face-to-face assessments for disability benefits and changes made to universal credit “will get 15,000 people back into work”.

Ms Reeves will seek to raise £1.2bn by March 2031 by extending a crackdown on fraudulent and mistaken universal credit payments via the targeted case review scheme.

She is also announcing funding to make training for people under-25 on apprenticeships free for small and medium sized enterprises.

Reeves also announced the Government is to fund a new “youth guarantee” which she says will provide £820m over the next three years.

Motability reform

The Motability scheme has confirmed that it will remove luxury vehicles and bring the scheme back to its original purpose of offering cost effective leases to those that are disabled.

Lower tax rates for retail, hospitality and leisure properties

The Government will introduce “permanently lower tax rates” for more than 750,000 retail, hospitality and leisure properties, funded through higher rates on properties worth £500,000 or more, such as warehouses used by large online organisations.

Additional funds for devolved Governments

Rachel Reeves told MPs that she is putting money back into the hands of local and regional leaders with £13bn of flexible funding for seven mayors.

She unveiled specific funds for devolved Governments, including an additional £370m for the Northern Ireland executive, £505m for the Welsh Government and £820m for the Scottish Government.

Rail fares

Rail fares will be frozen in the Budget, saving commuters on the most expensive routes more than £300 a year. This is one measure that the Government is aiming to ease the cost of living through.

Prescriptions

The cost of an NHS prescription in England is frozen at £9.90.

Tourism tax

Announced a day before the Budget, visitors to English cities and regions could face paying a new tourist tax. This will fund local projects. The Government said mayors will be given the power to impose a “modest” charge on visitors staying in hotels, bed and breakfasts, guest houses and holiday lets.

Navigating the Changes

Budget day can be an uncertain time for small business owners, but our expert accountants are on-hand to help you make sense of the changes, how they could affect your business and to answer any queries you may have regarding your accounting needs and tax obligations.

If you need an accountant that you can trust with your finances, call us today on 0330 024 0406 or request a call back here.