In the lead-up to the upcoming UK budget on 26 November 2025, the government of Prime Minister Keir Starmer has signalled that significant tax increases may be on the horizon. Reuters reports that the PM declined to reaffirm Labour’s pre-election pledge not to raise taxes on working people, saying that economic conditions are worse than anticipated.
Why this matters
Finance Minister Rachel Reeves is under growing pressure to plug a substantial funding shortfall. According to Reuters, she is expected to raise “tens of billions of pounds” via tax or spending measures to meet fiscal-targets. Meanwhile, Sky News reports that this pre-budget signalling is “highly unusual” for the Chancellor, and is interpreted as setting the stage for a tax-raising budget.
What the government is saying
In Parliamentary remarks, Starmer told Labour MPs the budget would involve “tough but fair decisions” and pointed to long-term damage to Britain’s productivity caused by past austerity, Brexit and the pandemic.
The Guardian reports Reeves will give a pre-budget speech in which she will not repeat the manifesto pledge on no tax rises, acknowledging the need to explain the difficult choices ahead.
Possible tax changes on the table
Analysts and think-tanks identify several options being considered:
- Raising the basic or higher rate of income tax (the Guardian mentions a possible 2 p increase) and freezing tax thresholds.
- Extending the freeze on income-tax thresholds, a move that would pull more income into higher bands via “fiscal drag”.
- Raising taxes on wealth, capital gains or specific groups (e.g., landlords or high earners) while maintaining a focus on protecting “working people”.
Implications and risks
For taxpayers, the prospect of rising taxes may raise concerns about cost-of-living pressures, especially as many households already face financial strain. Politically, this marks a potential departure from Labour’s 2024 election promises, which included no tax rises for working people. Analysts warn that while the government frames changes as necessary for economic renewal, any perceived breach of pledges may undermine public trust.
Economically, the tax rises are seen as part of a broader strategy to stabilise public finances, invest in public services like the National Health Service and tackle long-term growth issues. But the government must balance revenue-raising with maintaining consumer demand and avoiding further inflationary pressures. Firms and markets are watching for how the budget addresses the revenue shortfall and whether spending cuts or tax rises dominate.
What to watch
- The full budget on 26 November: look for concrete announcements of tax rate changes, threshold freezes, new levies or major spending cuts.
- Chancellor Reeves’ pre-budget communications, including her forthcoming speech outlining “fairness and opportunity” but acknowledging difficult choices.
- Reactions from Labour back-benchers and voters, especially whether increasing taxes on working people prompts internal dissent or voter backlash.
- Market and business responses: bond-markets and business sentiment often react strongly to tax signals, particularly large-scale increases.
