Ahead of the Budget: Mark’s key predictions

As we approach the forthcoming Autumn Budget on 26 November, the Government finds itself stuck between a rock and hard place. The Chancellor of the Exchequer is under pressure to close a growing gap in the public finances, while balancing the need to stimulate growth and maintain public services.

The backdrop

The UK economy is facing sluggish growth, elevated inflation and rising borrowing costs. International Monetary Fund analysts warn that the UK is on track to record the highest inflation among the G7 nations in 2025 and into 2026. Meanwhile, productivity growth has been revised down with some of the shortfall being blamed on the long-term economic effects of Brexit. In this context, the Treasury is said to be facing an alleged budget shortfall anywhere in the region of £20 to £40 billion.  

What to expect

Tax raising measures:

Despite last year’s biggest tax raising budget on record, and experts suggesting the tax burden will reach 38% of GDP by 2030, it appears the Government’s insatiable appetite for raising tax continues. Here are my top 3 revenue generating predictions.

1.Pensions

The Government has commissioned a review into the tax relief available on pensions, so the likelihood of a shift here looks like it may well come to fruition after years of scaremongering. The reliefs on offer currently cost the country in excess of £50billion per year and the possible options to reduce this burden include:

• Limiting the available tax relief on pension contributions 
• Capping or removing the 25% tax-free lump sum on withdrawals
• Removing the national insurance advantages from salary sacrifice arrangements, affecting both employees and employers

The elephant in the room here is public sector pensions – what happens to these final salary schemes will remain to be seen, but it would be unfair to leave them untouched and only penalise private sector workers.

2.Breaking the manifesto promise

The Labour Party promised not to increase taxes on working people. Some may argue they have already done this, but I’m not sure if they have a choice than to go deeper. If the alleged shortfall numbers are to be believed, they will need a big revenue raiser and taxes on working people fits the bill.

It’s almost inevitable that personal tax thresholds will be frozen again and the fiscal drag will continue. I will even go one step further and say, despite the pre-election pledges, income tax will rise, possibly by up to 2p. Estimates suggest that every penny of income tax increase will generate in the region of £9 billion and, by implementing this measure alone, it brings the Government very close to eliminating the shortfall.

With government approval ratings at an all-time low, it may be a good time to push this through and hope, as D-Ream put it, things can only get better.

3.Fuel Duty

The 5p cut in fuel duty expires in March 2026. Given that prices have stabilised somewhat, I cannot see the Government extending this. This will add 6p to a litre of fuel as VAT is applied to the fuel duty and will raise up to £3billion per year.

What I would like, and not like, to see.

I think a reform in property taxes is long overdue. We are relying on 1991 values when it comes to council tax and a good chunk of the UK’s housing stock has been constructed since that date.

It seems crazy to me that a 4 bedroom family home in Stockport pays just as much council tax as a £40 million mansion in Westminster. Expanding the banding system from A to G and having an annual tax on property value will be tricky to implement, but will be fairer. 

One final comment, hopefully there will be no more politically motivated policies such as subjecting private education to VAT. I hope private healthcare, books, university tuition fees and food are not in the Government’s VAT crosshairs.

What this means for you

For households and businesses, the Budget will likely bring an increased tax burden but the tax team here at Dafferns is here to help you navigate the complexities and help you plan your tax affairs accordingly. Therefore, please do not hesitate to get in contact if you require any assistance.