26 November 2025
Chancellor Rachel Reeves has outlined tax raising measures totalling £26 billion in her Budget speech, following the accidental early publication of the main measures by the Office for Budget Responsibility (“OBR”).
The projected fiscal headroom is £12 billion higher than anticipated in March, providing reassurance to investors that the government has a stronger buffer against unexpected economic shocks. Most of the tax measures are backloaded however, with spending set to rise in the coming years, meaning the Budget is only expected to move into surplus at a later stage.
Market reactions were mixed on the day. The yield on the UK 10 year gilt, a key benchmark and barometer of investor confidence, initially rose, but by the time the Chancellor delivered her speech, yields had fallen by 0.14%. Similarly, equity markets experienced a brief decline but rebounded sharply, with the banking sector performing particularly well after confirming it would not face the proposed tax increases. By the close of the speech, market levels had largely returned to where they began, suggesting that, beyond the headlines, investors were not materially surprised by the Budget announcements.
Income Tax Thresholds: The government has announced that income tax thresholds will remain frozen until the end of the 2030–31 financial year. The personal allowance, higher-rate, and additional-rate thresholds will remain at £12,570, £50,270, and £125,140 respectively.
Dividends, Property and Savings Tax Rates: Tax rates on dividends, property and savings will increase by 2% from April 2027. Savings rates will be 22%, 42% and 47% for basic, higher and additional rate taxpayers. Dividend tax rate will increase within basic and higher rates to 10.75% and 35.75% respectively, while the additional rate remains at 39.35%.
ISA Reforms: From April 2027, ISA rules will be reformed with a limit on Cash ISAs reduced to £12,000 (for those under 65), while retaining the £20,000 annual allowance for Stocks & Shares ISAs. Therefore, £8,000 will be specifically available for investments to encourage more retail investment saving.
Salary Sacrifice Contributions: From April 2029, salary sacrifice on pension contributions above £2,000 will be subject to National Insurance, raising an estimated £4.7 billion.
Mansion Tax: A high-value Council Tax surcharge will be introduced in England, charging £2,500 annually on properties over £2 million and £7,500 for properties over £5 million. This will yield an estimated £400 million in tax revenue over this parliament.
Equity markets have initially reacted calmly, with the FTSE 100 currently trading 0.9% higher. Looking forward, the changes to fiscal spending do not seem to significantly alter the landscape for UK companies. A small but noteworthy point was around stamp duty reliefs to encourage companies to list on UK public markets rather than overseas (trying to reverse a recent trend of companies both staying private longer and then listing elsewhere, particularly on NASDAQ in the US over the UK).
There was also some change to ISAs, although not as stringent as had originally been speculated. To help encourage more UK citizens to grow their savings via investment, the annual limit for Cash ISAs will be reduced to £12,000 (for those under 65), whilst the Stocks & Shares ISA allowance will remain at £20,000. They did however stop short of a specific incentive or requirement to focus savings investment into UK companies, which had been speculated particularly for defined contribution pension schemes. Nevertheless, a prediction of £3 billion of retail investment towards UK-listed companies is expected.
Perhaps most importantly, the OBR has predicted a 0.4% decrease to inflation in 2026, which is significant, whilst the UK CPI (Consumer Price Index, the preferred measure of inflation by the Bank of England) remains more than 1% ahead of the Bank of England’s 2% target. When coupled with a decrease to the forecast Gross Domestic Product (“GDP”) growth in each of the next 4 years, this could well encourage swifter decreases to interest rates, which are generally seen as a positive for equity markets.
President Bill Clinton’s chief strategist, James Carville, famously said that if he was reincarnated, he would want to come back as the bond market because it ultimately controls economies. At the time of writing, bond markets seem to be taking the announcement in their stride, with 10 year gilt yields sitting just below 4.46%. The UK government now spends 1 in every 10 pounds on debt interest; that’s not paying down debt, just servicing the interest on what is more than £2.7 trillion of national debt. The OBR predicts that the tax take will reach an all-time high of 38% of GDP by 2030-31.
As is often the case with such things, the ‘hype’ tends to exceed the reality, but this may be particularly due to the increasing level of speculation and leaking taking place around Westminster ahead of official announcements in Parliament (a comment to such was made by the Deputy Speaker ahead of the Chancellor’s address). There will be more to follow, and no doubt some nuances will appear, but for now the world continues to turn.
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