2025 Budget Briefing Tax Policy Preview – Options and Possible Impacts
Ahead of Wednesday's budget, what are the Chancellor's options?
Chancellor Rachel Reeves will likely fill the gap with broad-based income tax increases and a ‘dog’s breakfast’ of smaller measures
Root cause is spiralling public spending – not productivity downgrades or economic shocks
Tax revenues from multiple small changes are unreliable compared to simpler increases in income tax or VAT
New analysis published today by the Institute of Economic Affairs reveals Chancellor Rachel Reeves faces a financial hole of up to £30 billion ahead of Wednesday’s Autumn Budget, which she will probably attempt to fill through broad-based increases in taxes on income alongside numerous smaller tax changes.
The briefing paper, ‘2025 Budget Briefing: Tax Policy Preview – Options and Possible Impacts’ by Julian Jessop, explains how this gap has opened up since the March 2025 forecast and assesses the Chancellor’s options for closing it.
The single largest component of the £30 billion hole – approximately £20 billion – reflects a long overdue downgrade to the OBR’s forecasts for productivity growth. However, the remainder results directly from policy decisions made by the current government, including abandoning the £5 billion welfare savings package announced in Spring and spending any favourable economic assumptions rather than banking them to reduce borrowing.
The Chancellor is expected to extend the freeze on personal tax thresholds beyond 2028, raising £8-10 billion through the effects of fiscal drag. The remaining £20 billion would come from what Jessop describes as a “dog’s breakfast” of smaller measures – potentially including increased Council Tax on higher-value properties, closing Capital Gains Tax loopholes, new taxes on partnerships (LLPs), levying National Insurance on rental income, and increased ‘sin taxes’ on gambling and sugary drinks.
The analysis warns that revenues from such a patchwork of smaller tax increases are inherently unreliable. Behavioural responses mean the actual revenues raised would be much less dependable than those from simpler increases in broad-based taxes like income tax or VAT. The taxation of wealth is particularly difficult because assets are harder to value than cash payments, while ‘sin taxes’ that aim to discourage activities whilst raising revenue from them often end up doing neither.
More positively, the Chancellor is likely to increase fiscal headroom to provide a larger buffer against future shocks, and many tax increases would be ‘backloaded’ towards the end of the forecast period rather than taking effect immediately.
Julian Jessop, Economics Fellow at the Institute of Economic Affairs and author of the briefing, said:
“This year’s Budget is set to be just as painful as the last. The Chancellor will attempt to fill a new hole of perhaps £30 billion with broad-based increases in taxes on income and from a dog’s breakfast of many smaller measures.
“This hole is not entirely of the Chancellor’s making. Most of the shortfall reflects a downgrade to the OBR’s projections for trend productivity growth, which is arguably long overdue. She will also want to increase the buffer against future shocks by raising the fiscal headroom above the low levels inherited from the previous government.
“Nonetheless, this should have been done by curbing the growth of spending, rather than by increasing the tax burden even further. Relying on a dog’s breakfast of many smaller tax changes is also more likely to backfire.”
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Interesting predictions. It just goes to show how limited the options are for Reeves. I think that, Julian has just about got the prediction of her actions right as they are the only advance options propagated as ‘the only options’.
But, my view is her choices and Julian’s predictions that are similar u agree, are all the wrong ones. Because you and her and most of the popular theorists will only be thinking of those options.
I on the other hand think that ‘growth’ of tax revenue is required but, not from increased taxes but, rather from increased tax take from making more of our money move from its present sedentary position to one of having to make money move faster and in more weight than at present .
At present, only a fraction of our total money is being SPENT in our tax paying economy. Those holding more MONEY than they need away from our actual tax paying economy in Banks here and abroad who are not SPENDING it not using it or leaving it idle or hoarded do not contribute to our tax producing economy. Neither is unspent and unused money taxed either! It triggers no taxes all.
So on the one hand you have all of the pounds sterling out there, in the aether, a fraction of which IS BEING SPENT by us all that does contribute to our tax paying economy that does trigger taxes and contributes to the coffers of the nation and on the other hand, you have vast amounts of our MONEY in pounds sterling NOT BEING SPENT every month not triggering taxes nor contributing to our tax paying economy.
Instead you have the money in Banks here and abroad and anywhere but here, in the hands of people who will lend it back to us at exorbitant rates and amounts that tie us into a doom loop of not earning enough freely but pretending that borrowing it is the only option to keep in funds. Whether a household or a business or a nation!
We have to reach for loans to cover underfunding of incomes of all types. Who from? All those who have it and DONT SPEND IT!
Julian, and all. We are underfunded and underpaid. That’s why we borrow. Even the government!
If all money were to be SPENT each month the whole picture would be so different!
For example, if it’s true, that there is approximately £19 trillion pounds out there in the aether (why we don’t know exactly is testament to our naivety) and all of that money was SPENT just once, not trillions of times rotating but just the once in one whole year, just once in one year, the Vat take alone , no other taxes just Vat then, the tax take alone would be £3.8 trillion pounds into the coffers for Reeves to SPEND.
£3.8 trillion pounds!!!!!
We only generate £1.1 trillion pounds from our economy in one year now! From all the ‘dogs dinner’ if taxes while the Government SPENDS £1.5 trillion per year!
We only get £1.1 trillion now but, could get or rather should get £3.8 trillion from just one tax. What in Gods name are they doing?
It shows me nobody knows what they are doing or what they should do.
Look Julian. In your report you infer that taxation can only come from ‘productivity’. That’s not being realistic.
Yes, productivity does produce goods and services to create profit that can be SPENT to trigger taxes.
But so can just simply SPENDING all your INCOME produce just as much tax take if not more! As I have shown above. It’s not about productivity so much as simple cash flow.
Simply SPENDING MONEY each and every month can produce the optimum amount of tax take possible. Whereas NOT SPENDING MONEY each month reduces that optimum tax take to a much lesser amount of tax revenue like we have now.
We are all underfunded and underpaid. Because of the system allowing MONEY to be held away outside our tax paying economy UNSPENT and UNUSED.
Our system is as old as time. To replace bartering and to give taxes money was introduced. As a fair exchange of work between you and me say.
But it was soon being used as an unfair exchange or not exchanged at all. Similarly to the rich holding onto too much now.
MONEY is NOT being fairly exchanged nor exchanged at all!
That’s why we produce less taxes than we need. And why we are constantly short of it. Not because MONEY is NOT out there. No. MONEY is out there! It’s just it’s NOT BEING SPENT freely between us in that “fair exchange of work”. That’s the root cause. Nothing more than cash not flowing!
Julian, unless you start to see it for what it is, as well as a dogs breakfast, but more simply a cash flow problem then we will never get out of this doom loop of indebtedness and constantly being underfunded in every way.
Take control back! Of our money.
Re establish exchange controls. Keep all our money here in digital form. Put a ‘spend by date’ on all money. Make money move or at least most of it.
Keep all our money in the uk bank system. Banks must exist not for profit just to facilitate movement of money.
If we earn more from more SPENDING we won’t need to borrow! We can enjoy our fruits every day! Not once a year in holiday!
More SPENDING means more earnings. We will all be richer from increased earnings.even the rich! But, not from holding money, no. But, from the goods and services bought with SPENDING all that new monthly income.
Minimum wages can finally be more than benefits. Showing work is better!
Take the emphasis away from saving to SPENDING. We all get more in the long run!
Surely that’s better?