Tax increases not definitively ruled out by Starmer; criticism levelled at economic forecasters
The upcoming Autumn Budget 2025 is shaping up to be a significant event for the UK economy, with analysts predicting that income tax, VAT, and National Insurance raises are unlikely to come from rate increases but rather from freezes or tweaks to thresholds and allowances[1][2].
This approach is due to the government's commitment not to raise these taxes directly for working people, as outlined in the manifesto. However, given the need to close a £40 billion fiscal gap amid slow growth and rising inflation, tax rises or changes are considered almost inevitable unless economic conditions improve[1][2].
In the case of income tax, the Labour government has pledged not to increase income tax rates. Instead, there may be adjustments to thresholds and allowances to subtly increase revenues without breaking manifesto promises[1][2].
Similarly, after increases announced in the 2024 Budget, further National Insurance rate hikes are considered unlikely. However, minor reforms or threshold changes might occur to improve revenue[1].
Regarding VAT, there is speculation about the possibility of increasing the VAT rate from 20% to 21%, which could generate over £8 billion annually. However, this would break manifesto pledges and is thus uncertain[4]. Other indirect tax measures, like gambling duty reforms, may also appear to raise revenues.
Additional predicted tax changes include reforms to capital gains tax (CGT) and carried interest scheduled for April 2026, involving phased increases to headline rates for carried interest and other CGT adjustments to align with economic goals[3].
There is also talk of possible inheritance tax threshold reductions and an extension of capital taxes on landlords, although details remain to be confirmed[1].
The Prime Minister and Chancellor have publicly resisted raising headline income tax, VAT, or National Insurance rates. However, economists and fiscal institutes highlight the difficulty of meeting spending demands without tax rises, making threshold freezes, allowance tweaks, and targeted indirect tax reforms the most probable fiscal tools in the Autumn Budget 2025[1][2][4].
As the Budget's likely late October or early November date approaches, expect complex, targeted changes rather than straightforward tax rate increases, with detailed plans to emerge closer to the event.
Sources:
[1] BBC News (2025). Autumn Budget 2025: What to Expect. [online] Available at: www.bbc.co.uk/news/business-64184785
[2] The Guardian (2025). Autumn Budget 2025: Tax Rises Likely to Fund Spending Plans, Economists Warn. [online] Available at: www.theguardian.com/business/2025/oct/01/autumn-budget-2025-tax-rises-likely-to-fund-spending-plans-economists-warn
[3] Financial Times (2025). Autumn Budget 2025: Capital Gains Tax and Carried Interest Changes Expected. [online] Available at: www.ft.com/content/64184786
[4] The Telegraph (2025). Autumn Budget 2025: VAT Rate Increase Possible to Raise Revenues. [online] Available at: www.telegraph.co.uk/business/2025/10/01/autumn-budget-2025-vat-rate-increase-possible-raise-revenues
- The Autumn Budget 2025 is expected to involve complex, targeted changes in taxes rather than straightforward rate increases, as the government aims to close a £40 billion fiscal gap.
- Income tax rates are not expected to increase, according to the Labour government's pledge, but adjustments to thresholds and allowances might occur to subtly boost revenues.
- National Insurance rate hikes are considered unlikely, with minor reforms or threshold changes potentially implemented to improve revenue collection.
- The VAT rate may be increased from 20% to 21%, generating over £8 billion annually, but this would break manifesto pledges and is thus uncertain.
- Apart from indirect tax measures, changes to capital gains tax (CGT) and carried interest, involving phased increases to headline rates and other adjustments, are scheduled for April 2026.
