Deep Dive: How His Majesty’s Treasury Is Setting Budget Expectations

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One of the leading questions we see in UK financial headlines these days: Whose taxes will the government raise in this month’s Budget, and by how much? The UK Treasury and Chancellor of the Exchequer Rachel Reeves are reportedly considering as many as 100 (!) tax changes, and whilst not everything is a hike, the prospect of paying more to the government is very likely on many UK investors’ minds.^[i] But whatever Reeves announces on 26 November is unlikely to pack much negative surprise power for stocks, in our view. Why? Because Reeves and Co. have widely telegraphed all the possible options for months and months. Let us take you on a tour.

Income Tax Hike Incoming?

Based on financial commentators we follow, most are focussed on the ways Labour could break its manifesto pledge not to raise taxes on working people, presumably meaning income tax, employee National Insurance Contributions (NIC) and value-added tax (VAT).^[ii] After Reeves’s Budget table-setting speech last week, we have seen potential income tax hikes garnering a lot of interest.

As a refresher, the UK’s tiered system features three rates: a Basic Rate of 20% on incomes from £12,571 to £50,270, a Higher Rate of 40% on incomes from £50,271 to £125,140 and an Additional Rate of 45% on incomes over £125,140.^[iii] On 23 October, The Guardian reported Reeves was in “active discussions” to hike the Basic Rate by one percentage point, which would bring in an estimated £8 billion to government coffers.^[iv] Less than a week later, The Telegraph said Reeves was eyeing a two-percentage point hike whilst simultaneously cutting the NIC rate by two percentage points.^[v] However, Reeves is also considering restricting NIC cuts to those earning £50,000 or less—which would more or less cancel the hike for households below the Basic Rate threshold, limiting the tax rise to the top 25% of earners.^[vi]

A Basic Rate hike would be the first since 1975, perhaps explaining why it is so broadly feared.^[vii] It is something most working people today haven’t experienced. But hikes on higher earners have happened more recently, and most Brits have been affected by frozen tax bands since 2021—stealth tax hikes.^[viii] This is only one area reportedly in the Treasury’s sights, though, based on our coverage.

Real Estate

The Treasury has also floated real estate tax trial balloons since summer. On 18 August, The Guardian reported Reeves was looking into a tax on home sales worth more than £500,000—a step toward replacing the stamp duty on owner-occupied homes with a national property tax.^[ix] Ten days later, the same publication said the Treasury was examining a proposal to expand NIC to include rental income—effectively a landlord levy.^[x] Currently, earnings from property, savings and pensions are exempt from NIC.

There have also been rumblings council taxes are going up. Currently, domestic homes are placed in one of eight bands based on the property’s sale value.^[xi] On 1 November, we saw some reports saying the Treasury may double the rate on the two highest council tax bands (G and H), meaning a typical annual bill would go from £3,800 and £4,560 to £7,600 and £9,120, respectively.^[xii] This change would predominantly hit households in London and the South East, according to our research.

Tax on Dividends

In June, The Telegraph reported Reeves was mulling tax hikes on dividends, which ranged from abolishing a £500 tax-free allowance for dividend payments to raising the Basic Rate.^[xiii] The government treats dividends as income—which means the rate paid depends on a person’s tax band (the aforementioned Basic Rate, Higher Rate and Additional Rate). Money made from investments at the top two rates is taxed at generally the same rate as income, but the dividend rate is significantly lower for Basic Rate payers (8.75%)—so we saw many observers argue a hike awaits. On Sunday, The Telegraph said Reeves may opt for a dividend hike of four points for Basic Rate earners (bringing dividend tax rate to 12.75%), though she could also scrap the idea.^[xiv]  

Pension Changes?

On 31 October, The Telegraph reported Reeves was preparing to reduce tax breaks from salary sacrifice pension schemes.^[xv] These programs allow workers to sock money into retirement accounts before it is subject to income tax or NIC. The Treasury also floated a trial balloon of setting tax-free contribution limits to £2,000 annually last week.^[xvi]

Elsewhere on the pension front, we have seen government officials have been trying to squash speculation the chancellor will cut once-in-a-lifetime tax-free pension lump-sum withdrawals (allowed up to 25% of the total pension, for a maximum of £268,275), especially after pension savers withdrew big sums from their retirement pots due to the possibility of new pension rules.^[xvii] If the government is true to its word here and doesn’t cut the maximum amount, we think those who acted could easily be taught a lesson in the folly of letting tax speculation rule over long-term goals and needs.

On Cash ISAs

Reeves has also sought ways to move cash into domestic stocks based on our financial headline coverage, and one target appears to be cash Individual Savings Accounts (ISAs) Currently, an account holder can contribute up to £20,000 a year, but some outlets we follow reported Reeves may halve it to £10,000 a year.^[xviii] The logic: Investors would put the money earmarked for their cash ISA into other tax-advantaged accounts targeting stocks instead. That said, less than a month later, reports have emerged that Reeves is considering a less dramatic cut (to £12,000 a year)—due in part to resistance from building societies, which say they use cash ISAs to fund mortgages.^[xix]

Inheritance Taxes

Increase capital gains tax on inherited assets

Instead of taxing an asset based on when the beneficiary inherited it, the Treasury is considering eliminating the cost basis step-up—which means taxing an asset based on when the original owner purchased it.^[xx] This means gains accrued since the initial purchase are subject to tax—likely leading to a much higher tax collection.

Other Tax Hikes and Policy Ideas

Above and beyond those income and investment-related measures, we have seen the government consider an array of other tweaks. We list major ones below, but if you prefer skipping them and getting to the upshot, click here.

Electric vehicles (EV) tax^[xxi]

EV drivers would have to pay a charge of three pence a mile to offset lost fuel tax revenue, which funds roads, infrastructure and public services, as more folks switch from petrol to electric.

Exit tax^[xxii]

Reeves is considering imposing a 20% levy based on the value of business assets (e.g., company shares) of those who decide to leave the UK.

Limited Liability Partnership tax charge^[xxiii]

The Chancellor is reportedly looking into a levy (slightly less than 15%) on those in a limited liability partnership (LLP). Currently, partners pay income tax on profits accrued, but because they are considered self-employed, they don’t pay employer NIC. This would affect more than 190,000 workers, many of whom are in the legal industry. On 7 November, Financial Times reported this tax change will be less aggressive than feared.^[xxiv]

Gambling taxes^[xxv]

Reeves signalled in an interview with ITV News that she thinks “there’s a case for gambling firms paying more.” Former PM Gordon Brown has been lobbying for this to fund increased child welfare assistance.

Ending fuel duty relief^[xxvi]

Reeves is considering cutting the five-pence-a-litre in Fuel Duty relief—which would mean higher taxes for motorists.

Whilst tax hikes have dominated most analyses, Reeves has floated other policy trial balloons, too.

Removing the two-child benefit cap^[xxvii]

In 2017, the two-child benefit cap took effect. The programme’s goal was to prevent parents from claiming a tax credit for a third child (or more)—supposedly to encourage benefit recipients to enter the workforce. The Guardian reported in September that Reeves was exploring a partial removal. Yesterday, that same outlet said she will fully remove the cap in the name of reducing child poverty.

Scrapping North Sea windfall tax^[xxviii]

Reeves has looked into ending the energy profits levy earlier than expected (March 2029 instead of March 2030).

Cutting VAT on energy bills^[xxix]

Reeves told the BBC she was planning “targeted action to deal with cost-of-living challenges” in her Budget—which BBC found could mean reducing regulatory duties on energy bills.

No new taxes on banks^[xxx]

Despite much speculation we saw, UK banks aren’t likely to be a target of a Budget tax raid, as Reeves thinks British banks pay high levels of tax by international standards already.

Updates to planning system^[xxxi]

Reeves is looking into ways to make it easier for developers to build houses and infrastructure projects.^[xxxii]

The Upshot: What to Make of Budget Chatter

Whatever your feeling toward the myriad policy leaks may be, the reaction is kind of the point, in our view. Trial balloons can gauge businesses’ responses, investor appetite and voter approval. Moreover, many of these proposals probably won’t become reality (at least as understood right now), and the Treasury’s telegraphing has already led to some revisions—see the aforementioned Cash ISA allowance reduction.

These Budget ideas also aren’t sneaking up on anyone. Outlets across the UK are spilling oodles of pixels on Budget 2025 coverage, from the BBC (“What Taxes Could Rise in the Budget?”) to The Telegraph (“All the [Mostly] Risk-Free Ways You Can Protect Your Money Before the Budget”). In our experience, investors incorporate this chatter into portfolio decisions to buy and sell—and some are acting fearfully. As alluded to before, some savers have pulled money out of their pensions early due to Budget uncertainty; similarly, recent market data suggest some UK-based investors are exiting stocks due in part to potential tax changes.^[xxxiii] We can debate the wisdom of those moves, but the upshot: We think all the attention paid to the Budget right now dampens whatever surprise power there may be come 26 November.

Perhaps you think headlines don’t reflect regular folks’ concerns. Fair enough. But there are other ways to track interest. For example, The Telegraph’s article last Friday on possible pension tax changes garnered over 3800 reader comments as of Wednesday evening GMT, trouncing the 510 comments across four articles featured in the paper’s “Must Reads” sidebar in the Money section.^[xxxiv] In industry terminology, that is outstanding engagement, especially considering The Telegraph’s articles are behind a subscription paywall. Moreover, interest in UK Budget issues has picked up this month if Google search engine trends are any indication. (Exhibit 1)

Exhibit 1: Google Trends for the UK Budget

Source: Google Trends, as of 12/11/2025. Search terms for “UK Budget” and “UK Budget Pension” within United Kingdom, 12/10/2025 –12/11/2025. Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means insufficient data.

Whilst Reeves’s Budget has elicited plenty of strong opinions, we don’t think she is breaking new ground—she isn’t even the first to use trial balloons. Former Prime Minister Rishi Sunak floated potential measures to pay for COVID costs when he was Chancellor in May 2020.^[xxxv] Reeves’s breaking Labour’s manifesto promises also isn’t unprecedented—it is politics as normal, in our experience. Sunak also broke the 2019 Tory manifesto after he raised NIC.^[xxxvi] Tax hikes aren’t policies unique to Labour, either. According to our research, the Conservatives started the North Sea windfall tax, froze income tax bands, made EV drivers pay road tax effective this spring and hiked corporate taxes.

Now, Reeves’s Budget will likely have political consequences, especially with Labour’s popularity in the polls already in the doldrums.^[xxxvii] We read about rumblings of backbench rebellions and leadership challenges daily. But for investors, we don’t think such political developments are necessarily gamechangers for markets. Surprises move market most, and any power on that front seems spent to us. And whilst uncertainty is high now, it is falling as we get closer to Budget day. Increased clarity is generally positive for markets, in our experience.