Stealth, Wealth and a Healthy Dose of Fairness.
1st Dec 2025
Just under a week ago, the Chancellor Rachel Reeves delivered her second Autumn Budget, amid promises of taking the fair and necessary choices to deliver on the government’s promise of change. Framed as a “Budget for fair taxes, strong public services, and a stable economy,” it seeks to balance competing priorities: fiscal consolidation, social equity, and economic resilience. Yet, beneath the rhetoric of fairness lies a complex interplay of tax rises, welfare reforms, and targeted relief measures that warrant closer reflection.
At its core, this Budget entrenches a tax-led approach to fiscal consolidation. The government has chosen to raise approximately £26 billion through measures that avoid headline increases in income tax rates, VAT, or National Insurance—honouring manifesto pledges—but instead rely on stealthier mechanisms such as prolonged threshold freezes and targeted levies. Income tax and National Insurance thresholds will remain frozen until 2030/31, a move that will gradually pull millions into higher tax bands through fiscal drag. It is estimated that around 920,000 more individuals will pay the higher rate of tax (40%) by 2029/30, with around 780,000 likely to brought into the [basic rate] tax net in the same timeframe.
This strategy is pragmatic in one sense: it provides the Chancellor with £22 billion of fiscal headroom, doubling the buffer against debt targets and signalling credibility to financial markets. Yet, it also raises questions about fairness. While Reeves avoided overt rate hikes, the cumulative effect of frozen thresholds disproportionately impacts working households, eroding disposable income over time.
Beyond threshold freezes, the Budget introduces structural changes that reshape incentives. Dividend tax rates will rise by two percentage points from April 2026, albeit not for additional rate taxpayers, reducing the attractiveness of dividend-based remuneration for business owners and further aligning the dividend versus bonus profit extraction model. An alignment that surely started with George Osborne’s removal of the 10% dividend notional tax credit from April 2016.
Tax on property and savings income will also see a rise by two percentage points, across all bands, a little later however, from April 2027. Alongside a new order to the income tax calculation, it certainly smacks of a shift in tax burden toward individual investment and capital income. I assume I can be forgiven for being little bemused as to whether these do amount to income tax rises after all?
Similarly, the cap on tax-free pension salary sacrifice (limited to £2,000 annually from 2029) marks a significant departure from long-standing reliefs, affecting high earners and pension savers alike. These measures, alongside the new High Value Council Tax surcharge on properties worth over £2 million and per-mile charges for electric vehicles from 2028, reflect a broader shift towards taxing wealth and assets rather than labour alone.
While such reforms may appear progressive, their intent invites scrutiny. For instance, the High Value Council Tax surcharge introduces complexity without addressing the outdated 1991 valuation basis of council tax. Similarly, the EV mileage levy, though justified as a response to declining fuel duty receipts, risks discouraging adoption of cleaner transport unless paired with congestion-sensitive pricing.
It also persistently begs the question – are these measures as fair as the Chancellor portrays, and to what extent are they about balancing the books versus restricting freedom of choice? More individuals brought into taxation within a just a few years – is that pay rise really so appealing after all? Limits on cash that can be invested in ISAs for those aged under 65 from April 2027, designed to nudge savers away from holding large sums in low-yield cash ISAs and instead invest in stocks and shares ISAs, which could offer better long-term returns and channel more capital into UK businesses. A boost for the economy maybe, but a limitation on the choice over risk and market volatility certainly.
We seem to be experiencing a hand that giveth and a hand that taketh away simultaneously. Hardly the Oxford dictionary definition of fair. The Autumn Budget 2024 introduced radical changes to the IHT code for agricultural and business property reliefs. This Autumn, a concession that the new £1m allowance can be transferred between spouses after all. But what about the frozen residence nil rate band?
In 2024, eligibility for the Winter Fuel payment was restricted to only the poorest pensioners (those on means-tested benefits). Reversed in June 2025, the payment was reinstated for those over state pension age and with gross annual income of £35,000 or less. To avoid complex means-testing, those ineligible will need to repay, and last week it was confirmed that this would occur automatically via PAYE or Self Assessment, if completed. It’s not the first time the tax system has been tasked with collecting non-tax receipts (student loan repayments, and High Income Child Benefit charges spring to mind).
On the welfare front, the scrapping of the two-child benefit cap stands out as a bold and welcome move, projected to lift 450,000 children out of poverty. However, you will recall circa 780,000 individuals will be brought into the tax net by 2029/30. She giveth…
Social equity was addressed with above-inflation increases in the State Pension and targeted support for energy bills (around £150 off household costs from April), however it seems a fairness-opportunity was missed amid the silence on adult social care funding.
The Autumn Budget 2025 is neither radical nor complacent; it is a Budget of calculated trade-offs. Reeves has chosen a path of incrementalism, raising revenue through stealth taxes, offering selective reliefs, and deferring hard choices on spending reform. This approach may secure short-term stability and market confidence, but it leaves unresolved questions about fairness, growth, and resilience. For businesses and households alike, the message is clear: prepare for a decade of higher effective taxation and constrained fiscal space. Whether this strategy delivers the promised stability without stifling ambition remains to be seen. It feels as though we may have been here before.
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