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Dr Scott Andrews and Boyd Hargreaves from the ºüÀêÊÓƵ's Business School respond to the Chancellor's Autumn Budget.

Leaks, leaks and more leaks! Rarely has there been so much pre-budget energy spent on predicting the likely content of the Chancellor’s infamous red briefcase as the date of the Autumn budget loomed closer. Earlier planned statements released to the press implied manifesto-breaking tax rises were on the horizon, and yet these were later dismissed as a revised outlook on the economy suggested such rises would not be needed.

In the days and hours leading to the official budget statement further soundbites were leaked to the waiting press, such as increases to the national minimum wage and the national living wage, to prepare the nation’s hearts and minds for the full budget statement which was to be released at 12.30pm on Wednesday, November 26.

And then, with less than an hour to wait, there were further unprecedented revelations as the UK's budgetary watchdog, the Office for Budgetary Responsibility (OBR) accidentally leaked its forecast in response to the Chancellor’s not-yet-published statement. Finally, the moment arrived and with little more left to leak, the UK Chancellor of the Exchequer, Rachel Reeves, delivered her Autumn Budget Statement to a packed House of Commons.

In her opening remarks, she began by claiming that: “We are rebuilding our economy.” Reeves went on to say: “Working people demanded and deserved change.” She added: “There would be no return to austerity and I meant it”, “I said I would cut the cost of living and I meant it.” and “I said I would cut debt and borrowing and I meant it.”

In order not to renege on the manifesto pledges of 2024, she presented to the Commons what some might consider a 'pick n mix' budget that tweaked a broad range of taxes. Many would argue that this complicates further an already complicated tax system, and some have claimed it would have been more appropriate to raise income tax to raise additional funds.

This needed to be a tax-raising budget without appearing to go back on previous promises, as the UK government were looking to make medium term savings of £26bn by 2029-30.

Here’s how the Office for Budget Responsibility believe that this is going to be achieved:

• Personal tax threshold freeze (£8bn)
• Other tax measures (£5.8bn)
• Salary sacrifice pension changes (£4.7bn)
• Property, savings and dividends income tax increases (£2.1bn)
• Corporation tax changes (£1.5bn)
• Electric car mileage tax (£1.4bn)
• Gambling tax changes (£1.1bn)
• Capital gains tax changes (£0.9bn)
• 'Mansion tax' on properties over £2m (£0.4bn)

 

 

A broader summary of the key points from the budget 

Personal taxation

• National Insurance (NI) and income tax thresholds frozen for an extra three years beyond 2028, dragging more people into higher bands over time.
• Basic and higher income tax rates on property, savings and dividend income to increase by 2 percentage points.

Wages, benefits and pensions

• Caps limiting households on Universal or Child Tax Credit from receiving payments for a third or subsequent child are to be scrapped from April.
• Legal minimum wage for over-21s to rise 4.1% in April, from £12.21 to £12.71 per hour.
• The legal minimum wage for 18 to 20-year-olds to go up 8.5%, from £10 to £10.85 per hour, as part of a plan to establish a single rate for all adults.
• Basic and new state pension payments to go up by 4.8% from April, more than the current rate of inflation, under the "triple lock" policy.
• The amount people can sacrifice from their salary to avoid paying NI on pension contributions to be capped at £2,000 a year from 2029, with contributions above that taxed in the same way as other employee pension contributions.
• The Help to Save scheme, which offers people on universal credit a bonus on savings, to be extended and expanded beyond 2027.

Housing and property

• Properties in England worth more than £2m to face a Council Tax surcharge of between £2,500-£7,500, following a revaluation of homes in bands F, G and H.

Isa reform

• From 6 April 2027 the annual Isa cash limit will be set at £12,000, down from £20,000. The government will publish a consultation in early 2026 on the implementation of a new, simpler Isa product to support first time buyers to buy a home.

Transport

• 5p "temporary" cut in fuel duty on petrol and diesel extended again, until September 2026 before it rises again over a six-month period
• A new mileage-based tax for electric vehicles and plug-in hybrid cars to be introduced from 2028
• Regulated rail fares for journeys in England frozen next year for the first time since 1996 (there have been periods when prices rose by less than inflation).
• Premium cars to be excluded from the Motability scheme, which allows people on certain disability benefits to lease vehicles more cheaply.

 Electric vehicles

• As expected, there will be new excise duty on electric cars, payable alongside vehicle excise duty, at 3p a mile for electric cars and 1.5p for plug-in hybrids, to help double funding for road maintenance in England.

Business taxes

• Tax exemption for small packages from overseas retailers worth under £135 to be scrapped from 2029, following complaints it hinders UK businesses.
• Tax on profits made by gambling firms from online bets to rise from 21% to 40% in April, alongside abolition of the 10% bingo tax

Food and drink

• Tax on sugary drinks to be extended to pre-packaged milkshakes and lattes from 2028, reversing an exemption when the tax was introduced in 2018.

Two-child benefit cap

• “The biggest barrier to equal opportunity is child poverty,” said Reeves, as she abolished the two-child cap on child benefit, costing £3bn by 2029-30.

Other measures

• English regional mayors to be given powers to tax overnight stays in hotels and holiday lets, echoing existing plans in Scotland and Wales.
• Cost of a single NHS prescription in England frozen at £9.90 for another year (they remain free in Wales, Scotland and Northern Ireland).

 

What the numbers indicate

Following the Autumn 2024 Budget, we commented that: “this new government’s bid to fix the foundations to deliver change will have ramifications for many months, if not years, to come.” It was originally thought that the previous year’s budget might have done enough to ‘fix the economy,’ but it soon became clear that more would be needed in this year’s November budget to further tackle the challenges facing the UK economy.

Looking forward, on the positive side, the OBR now predicts the UK economy will grow by 1.5% this year, upgraded from a 1% forecast in March. However, on the negative side, the economy is now forecast to grow by 1.5% on average between 2026 and 2029, down from the previous estimate of 1.8%. Meanwhile, inflation appears to be running very slightly higher than predicted in March, coming in at 3.5% this year compared with a forecast of 3.2%, then 2.5% in 2026 (up from 2.1%). Thereafter it is predicted to remain static at 2% every year.

Borrowing in 2025-26 is predicted to be £138.3bn, falling to £112.1bn the year after, then £98.5bn in 2027-28, down to £67.2bn by 2030-31. That means borrowing is slightly higher next year, but it is predicted to be lower than forecast in March by the end of the period, in 2030.

In conclusion, Reeves proposed that the UK will cut debt more than any other G7 economy during this period, with the UK Government finances reaching a surplus of £3.9bn in 2029, £21.7bn the year after and £24.6bn the year after that.

Worcester Business School values its strong partnership with its business community and so we will be committed to keeping a close watch on the impact of these changes to the local economy as further details begin to emerge.

Dr Scott Andrews is Head of Worcester Business School and Boyd Hargreaves is a Senior Teaching Fellow in Economics.