Rocky, the fictional boxer from the eponymous film, and UK chancellor Rachel Reeves have more in common than one might think. Firstly, both publicly stated they wouldn’t come back for more. Rocky declared there “ain't gonna be no rematch!” at the end of the first Rocky movie in response to calls for another fight with rival Apollo Creed. Rachel Reeves said her £40bn tax-raising Budget in autumn 2024 was a one-off. “We are not going to be coming back with more tax increases,” said Reeves. The pair look set to have something else in common — going back on their word. Rocky fought Apollo in the next instalment of the series. Rachel Reeves is widely expected to unveil a second, multi-billion-pound tax-raising Budget to fill yet another hole in the public finances.
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The size of the fiscal hole that needs to be plugged is not yet certain, with estimates ranging from around £15bn-£40bn. There are many moving parts here, such as the seemingly increased possibility that Reeves opts for a larger buffer than the £9.9bn set out last year. A larger buffer would reduce the chances of needing to come back with additional tax increases and therefore help to support consumer and business confidence.
Limited options
The final figure to be raised will only be known when the chancellor stands up at the despatch box in the House of Commons on 26 November. What is known is that her options are limited. The high level of outstanding government debt, elevated gilt yields as well as repeated assurances from Reeves that she won’t break her fiscal rules would appear to rule out increasing borrowing. The government’s failed attempts to trim welfare benefits along with stated commitments to areas such as the NHS, prisons and defence, suggest significant cuts to expenditure aren’t on the cards either. That leaves tax hikes.
The direction of travel has been set it seems, not least by the chancellor herself in a speech in Downing Street on 4 November 2025. “We have got to do the right thing. We can’t keep on racking up debt,” said Reeves. The multi-billion-pound question is, which taxes will be raised?
Take your pick
Speculation has been wide ranging, including the introduction of a wealth tax; changes to property taxes; the equalisation of capital gains tax rates with those of income tax; adopting a uniform value added tax (VAT) rate; taxing banks more; as well as further changes to pensions and inheritance tax.
Other measures have been attracting more noise recently:
- Charging electric vehicle drivers three pence per mile in addition to other road taxes.
- Taxing higher-end properties more, potentially through new council tax bands.
- Introducing a capital gains exit charge on those who become non-resident and subsequently cash in on gains made while they were resident in the UK.
- Capping relief from National Insurance on salary sacrifice to pensions at £2,000 of contributions.
- Raising income tax rates.
Speculation surrounding income tax has been building for some time. In her Downing Street speech, the chancellor failed to rule out breaking what was a key pledge in her party’s 2024 election manifesto: if elected Labour would not raise the three main taxes — income tax, National Insurance and VAT. There was a growing sense that it was not a question of whether the income tax rate will rise, but by how much.
As the saying goes, a week is a long time in politics. Since the Downing Street speech focus appears to have shifted from raising income tax rates to freezing or lowering thresholds, highlighting how difficult it is to prepare ahead of Budget Day. Difficult but not impossible. Planning for all scenarios for example remains a useful exercise.
Increasing rates or tinkering with thresholds?
Take income tax. Scenario-planning shows a one-penny increase in the basic rate of income tax would amount to £124.30 a year for those earning £25,000; £374.30 for £50,000 earners; and £377 for those on £100,000. A two-penny rise would double those figures to £248.6, £748.6 and £754. These figures assume all other income tax rates stay the same.
Another option mooted was combining a two-pence increase in the income tax rate with a 2% reduction in employee national insurance contributions to 6%. This could be more politically palatable as it would soften the blow for those in employment and also protect lower- and middle-income earners while still raising more from higher earners. For those earning between £25,000 and £50,000, Quilter estimates the overall impact would be broadly neutral, while those earning £150,000 would face an increase of around £2,250 a year.
And then there’s income tax thresholds, either extending the freeze on these or lowering them. The higher-rate threshold, for example, could be lowered, pulling more people earning just above £50,000 into the higher band. Additional revenue would be raised without changing the headline rate.
Rolling with the punches
While no one knows what will be announced in the budget, this doesn’t mean nothing can be done until then. Preparatory work, such as the above modelling of possible changes to income tax, can be undertaken to map out various scenarios. So, if the tax hit comes, financial plans and investment portfolios can, if necessary, be quickly adjusted to ensure they remain optimal, at least until Autumn Budget 2026. Hopefully, by then the cycle of annual multi-billion-pound funding gaps will have been broken, negating the need for a repeat tax raid in a year’s time. And if that’s the case, then the similarities between Rocky and Reeves will end there. Just as well too. For Rocky goes on to fight Apollo for a third time in Rocky III.