The November 2025 Autumn Budget: Labour’s Tax U-Turn and What It Means for You
The lead-up to the November 2025 Autumn Budget has been marked by intense anticipation and unexpected twists. What was expected to be a landmark tax-raising statement has turned into a high-profile U-turn by the Labour government on one of its most controversial ideas: increasing income tax rates.
Below, we break down:
What was originally planned
What’s now changed (the “backtrack”)
How it’s likely to affect everyday people and small businesses
How Arctic Accounting Limited can help you navigate it all
What you can do now
1. The initial plan: breaking the income tax “red line”
Before this week, reports suggested that Chancellor Rachel Reeves was preparing to raise the main rates of income tax, possibly by 1–2p on the basic and higher rates.
This would have been a major move because:
Labour’s 2024 manifesto promised not to increase the rates of income tax, National Insurance or VAT for “working people.”
A basic-rate rise would have been the first such increase in around 50 years.
The plan was aimed at plugging a £30–£35 billion fiscal gap following the tough October 2024 Budget and the 2025 Spring Statement.
There was also speculation that this might be paired with a cut to National Insurance for lower earners, effectively shifting where the tax burden fell while still raising revenue overall.
In short, the government appeared ready to break a core tax pledge to raise more money quickly — even at the cost of political trust.
2. The U-turn: no income tax rate rise – but “stealth” tax rises instead
Over the past 48 hours, that plan has been dramatically reversed.
Multiple sources now report that Rachel Reeves and Keir Starmer have scrapped the proposal to raise income tax rates altogether, following pushback from within the party and concerns about market reactions.
Why the change?
Fiscal forecasts improved, shrinking the estimated budget shortfall to around £20 billion.
Senior Labour figures warned that breaking the income tax pledge could damage public trust.
Financial markets reacted nervously even to rumours of rate hikes, with short-term volatility in sterling and government bonds.
So, with income tax rates staying put (for now), how will Labour raise the money instead?
Here’s what’s currently expected in the revised Autumn budget:
a) Extended income tax threshold freeze
An “extended income tax threshold freeze” refers to a policy by which the government keeps the key income tax thresholds (and personal allowances) at the same cash-amount level for a multi-year period, rather than increasing them in line with inflation or wage growth.
The personal allowance and higher-rate thresholds are expected to remain frozen until 2030. This “fiscal drag” measure means that as wages rise, more people pay tax, and more basic-rate taxpayers slip into the higher-rate band.
b) Pension salary sacrifice restrictions
The Budget is also expected to limit or remove National Insurance advantages from pension salary sacrifice, potentially capping the amount that can be sacrificed tax-efficiently each year (possibly to around £2,000).
That would increase NIC costs for both employees and employers using salary sacrifice to boost pension savings.
c) New taxes on electric vehicles (EVs)
Reeves is also preparing to introduce new taxes on electric vehicles, likely through changes to Vehicle Excise Duty, benefit-in-kind rates, or other levies — closing the gap between EVs and petrol or diesel cars.
d) Wealth and property-based measures
Further reforms to capital gains tax (CGT) and inheritance tax (IHT) are being discussed, including closer alignment of CGT with income tax rates and possible new thresholds or surcharges for high-value homes.
In short: instead of raising rates, Labour appears to be leaning on threshold freezes, pension changes, and asset-based taxes to increase revenues.
3. What this means for everyday people
Even without an explicit rise in income tax rates, the new measures will quietly increase the tax burden for many individuals and small businesses.
Everyday employees
More tax through fiscal drag: With thresholds frozen, each pay rise pulls more income into tax bands, meaning your overall tax bill rises even if rates don’t.
Pension changes: Salary sacrifice restrictions could reduce take-home pay and lower the efficiency of pension contributions.
Wealth taxes: Future changes to CGT or IHT could affect anyone with property or investments outside of ISAs or pensions.
Small business owners and directors
Business owners face a tougher environment overall:
Higher employer NIC: Previously announced NIC rises took effect from April 2025, increasing payroll costs.
Complex reward planning: Threshold freezes and pension rule changes make it harder to design tax-efficient salary packages.
Company car costs: New EV tax rules could raise the cost of providing electric company cars.
Business sales: If CGT rates rise, selling a company, rental property, or investment portfolio could become more expensive.
Landlords and investors
Landlords and investors remain a clear target for tax rises. Changes to CGT and property-based taxes could further squeeze returns and make portfolio restructuring less attractive.
In essence: this may be a “stealth Budget”, but it’s still likely to increase the overall tax take.
4. How Arctic Accounting can help you navigate the changes
At Arctic Accounting, we help individuals and businesses translate complex policy changes into clear, actionable financial plans.
Here’s how we can help following the Autumn Budget:
a) Personal tax reviews
Assess how frozen thresholds will affect your income over the next few years.
Ensure you’re fully using all allowances — including personal, marriage, savings and dividend allowances.
Evaluate pension and investment strategies to mitigate fiscal drag.
b) Pension and salary sacrifice planning
Review your current arrangements to see if they’ll remain tax-efficient.
Model potential changes to take-home pay and long-term retirement savings.
Advise on alternative reward structures that work within the new limits.
c) Business owner strategies
Analyse how NIC and pension changes affect your payroll and profit extraction.
Help you optimise your salary/dividend mix.
Update fleet and car benefit plans to account for EV tax adjustments.
Integrate all Budget changes into forward-looking cashflow forecasts.
d) Property, CGT and inheritance planning
Review investment portfolios to identify assets at risk from CGT or IHT changes.
Explore timing strategies for disposals and the use of spouses’ allowances.
Begin or update estate planning to protect assets for future generations.
e) Ongoing updates and guidance
We’ll break down the confirmed November Budget details in plain English and keep you informed as implementation timetables develop.
5. What you can do now
You don’t need to wait for the official announcement to start preparing. Steps you can take now include:
Gathering your financial information — payslips, accounts, pensions, and investments.
Speaking to us about different tax scenarios based on your expected income or profits.
Making use of current allowances before 6 April 2026, in case rules tighten in future Budgets.
Arctic Accounting Limited can help you plan ahead with confidence — making sure you stay compliant, efficient, and financially secure no matter how the tax landscape evolves.
Sources
HM Treasury briefings and pre-Budget reports (October–November 2025)
BBC News, Sky News, and Financial Times coverage of the Autumn Budget 2025 preparations
Institute for Fiscal Studies (IFS) analysis on fiscal drag and income tax thresholds
Office for Budget Responsibility (OBR) fiscal forecasts (November 2025)
The Guardian, The Times, and The Telegraph political and economic coverage (November 2025)
Labour Party 2024 Manifesto (“Change”)
Arctic Accounting internal commentary and practitioner insights
