The well-documented tightening that the Chancellor had to go through was always going to make this a difficult Budget in order to comply with her fiscal rules – with headroom of just £9.9 billion left at the last budget.
This was worsened after a downgrading of productivity growth, U-turns on welfare reforms and winter fuel payments, as well as the higher cost of servicing debt. With departmental spending only recently announced, and little afforded headroom, tax rises were always most likely.
Furthermore, the October Public Finances data laid out the data – albeit that was not data that should have had an impact on the Autumn Budget (even if it may have an impact on the Spring Statement). According to Public Finances, October’s £12.6 billion deficit was greater than the £10 billion forecasted in the Spring Statement. Across the fiscal year, this brings a deficit of just £83.9 billion, larger than the £68.8 billion anticipated in Spring.
The delayed Budget was long suppressing both investor, consumer and business confidence. The Flash PMI for November saw a fall from 52.3 to 50.5 with respondents reporting pre-budget jitters across customers causing business spending decisions to be postponed.
A THOUSAND CUTS?
The decision to keep to the manifesto pledge and not raise income tax means that the budget delivered a wide range of smaller taxes. The singular largest impact on tax revenue was the extension of the freeze on personal tax thresholds which was extended longer than expected, while the cap on pensions is due to generate c.£4 billion.
Spending has been limited – the nods in the speech were very much linked to previous announcements on infrastructure being kept. Spending has been allocated towards keeping inflation down where possible – through freezes on rail fares and VAT (but not cutting) on energy costs. The Chancellor has also increased the minimum wage by 4.1%.
MARKET REACTION
As expected, there was volatility in markets in the 24 hours previous, with the Pound falling against the Euro on 25th November. In what was good news for the Chancellor, with the amount of information leaked in advance, there was positivity to be taken by the fact that both 10- and 30- year gilts were edging down in the first hour of bond trading on the morning of the announcement.
The biggest shock of the day was with regards to the accidentally released early OBR forecasts. The OBR forecast downgraded GDP 0.3 percentage points from 1.8% in March to 1.5% over the forecast, with productivity dragging down growth. This puts economic growth for 2025 at 1.5%, with 2026 slowing to 1.4%. More helpfully for the Chancellor, the OBR upgraded wage and inflation forecasts.
Despite the downgrades to growth, the Chancellor has managed to extend her headroom forecast to £22 billion in five years’ time. Furthermore, the tightening of fiscal policy was not as great as was forecasted – just £11.7 billion, compared to some economists’ forecasts of £25 billion+.
The Chancellor will have likely been watching the bond market as much, if not more closely, than the electorate. Gilts were already rising a week in advance of the budget in response to the soundings that the Chancellor had changed her mind on an increase in income tax. While a raise would have been against her manifesto pledge, many economic commentators suggested that this would have been a relatively straightforward way of shoring up public finances. In the first hours after the budget, while there had been some market movement initially – certainly upon the OBR leak, in truth there has been relatively little to write home about.
HERE'S WHAT THE BUDGET MEANS FOR…
HOUSING
Owners of homes valued at £2 million or more are set to be hit with a surcharge of at least £2,500 up to £7,500 a year from 2028. The charge will be levied as additional Council Tax. The move doesn’t come as surprise and is expected to raise £400m a year by 2029-2030. London will be hit hardest, with the boroughs Kensington & Chelsea and Westminster having the highest proportion of homes over £2million.
The ‘mansion tax’ will have an impact on valuations, acting as a barrier for house prices in or around the threshold, albeit some of this impact has already been felt given the strong rumours in the lead up to the budget. There may also be some knock-on impact on pensioners who cannot afford the additional charge, perhaps forcing them to downsize unless there is an ability to defer charges until a sale or death.
The budget also announced an increase in property income tax, increasing by two percentage points from April 2027. The basic, higher and additional rates will increase to 22%, 42% and 47% respectively. This is likely to continue to push some landlords out of the market, further impacting the supply demand imbalance in the rental sector, with knock on effects on rent levels.
The budget had no mention of a SDLT reform which was widely rumored and didn’t announce any meaningful new support for new homes construction, surprising given the viability dam the UK currently faces.
THE CONSUMER
The consumer was impacted by a freeze on personal tax thresholds, as well as the introduction of caps on pensions on the amount of salaried income – above £2,000 from April 2029 - that can be apportioned to pension pots without incurring VAT. Cash ISA limits were reduced from £20,000 to £12,000 in order to encourage greater investment in stocks and shares.
RETAIL AND HOSPITALITY
The Budget this year coincided with Black Friday and came off the back of weak retail sales activity and Consumer Confidence for October. The last few years have seen positive trading but tax hikes (and the fact that they were so well telegraphed) have left retailers in difficulty when it comes to forecasting sales and buying potential from an embattled consumer. This may lead to some retailers choosing to prolong Black Friday/Cyber Monday sales in the lead up to Christmas.
English City Mayors have been given the ability to impose tourist taxes for overnight stays. While Sadiq Khan and other big-city mayors have welcomed the news, hoteliers had already written a letter to the Chancellor that this would diminish UK cities’ appeal to domestic and international travellers. There were already plans in place for Wales and Scotland.
The application of import duty on all imported parcels follows the change in EU regulation. Specifically, this is designed to protect domestic retail markets from the influx of Chinese E-Commerce brands. This had been expected by importers, if widely ignored in the run-up to the Budget.
BUSINESS RATES
The key points included the announcement of the 2026/27 standard multiplier falling from 55.5p to 48.0p; and the 2026/27 small business multiplier falling from 49.9p to 43.2p. Assuming total revenue remains the same real terms, this suggests that total rateable value in England will increase more than we previously forecast.
A transition scheme was also announced for England. The cost of the transition scheme will be £3.2 billion. To partially offset some of the cost, there will be a 1p supplement for 2026/27 only applied to ratepayers who do not receive transitional relief.
- RVs up to £20,000 (£28,000 in London): in 2026-27 – 5%, in 2027-28 – 10% (plus inflation), in 2028-29 – 25% (plus inflation)
- RVs £20,001 (£28,001 in London) to £100,000: in 2026-27 – 15%, in 2027-28 – 25% (plus inflation), in 2028-29 – 40% (plus inflation)
- RVs over £100,000: in 2026-27 – 30%, in 2027-28 – 25% (plus inflation), in 2028-29 – 25% (plus inflation).
In addition, the Government is being less generous than we previously forecast, providing a total discount of £1.3 billion in the form of 5p discount off the relevant multiplier:
- RVs below £51,000 – 38.2p
- RVs £51,000 to £499,999 – 43.0p
To claw back the £1.3 billion cost of the RHL discounts a new high multiplier will be applied to RVs at £500,000 or higher. Given the cost of the RHL is less than forecast, the supplement is also less at 2.8p.
- RVs at £500,000 or higher – 50.8p
HEALTHCARE
250 new neighbourhood health centres are promised by 2030 to help bring down NHS waiting times and allow greater healthcare access. The programme is intended to bring integrated care closer to home and reduce pressure on acute hospitals. For Integrated Care Systems (ICSs) and NHS organisations, this means access to PPP-enabled delivery models, and a clear route towards the NHS long term plan.
THE AUTOMOTIVE INDUSTRY
EVs and hybrid car drivers will be subject to new road pricing, 3p per mile for electric cars and 1.5p for plug in hybrids from April 2028, going up each year with inflation. This new tax is about half the fuel duty paid by drivers for petrol cars. This measure is expected to bring in around £1.1bn in the 2028-29 financial year, rising to £1.9bn by 2030-31.
The OBR estimates that this policy will reduce demand for EVs, estimating that around 440,000 fewer electric vehicles will be sold in the five-year forecast period potentially impacting the growing manufacturing sector. However, measures to incentivise EVs will offset this figure by 130,000, according to the OBR, albeit a number of commentators have taken the new pricing as a view on the government’s sustainability credentials – albeit with relatively little other evidence.
