Chancellor Rachel Reeves has warned that “necessary choices” will be made in the forthcoming Budget 2025, refusing to rule out breaking her party’s manifesto promise not to increase income tax, VAT or National Insurance.
Reeves is preparing for the Autumn Budget on 26 November 2025, set against a backdrop of weak productivity, high global inflation, and structural challenges for the UK economy. The independent forecast provider Office for Budget Responsibility (OBR) is expected to revise downward UK productivity trends, potentially creating a £20-30 billion fiscal shortfall.
At the same time, the recent Spending Review signalled only modest real-terms growth in many departmental budgets, despite increased capital investment plans.
Political gamble: breaking the manifesto pledge
In her Downing Street address, Reeves stressed she would “do what is necessary, not what is popular.” Opposition figures and shadow ministers reacted sharply: for example, Sir Mel Stride said the speech confirmed fears “that tax rises are coming … If Reeves breaks her promise and hikes taxes again, she must go”.
This marks a clear change in tone from the earlier pledge—a move that could undermine public trust but Reeves appears to view as unavoidable given the fiscal constraints.
Where might the revenue come from?
Analysts and think-tanks point to several options:
•Raising one or more rates of income tax, breaking the so-called “50-year taboo”.
•Extending the freeze on personal tax thresholds beyond April 2028, which could raise around £7.5 billion.
•Reforms in other areas such as closing tax loopholes (for example low-value import customs exemptions) might also feature.
Reeves is under pressure to meet her “iron-clad” fiscal rules: (1) not to borrow for day-to-day public spending by the end of the parliament, and (2) to ensure government debt falls as a share of national income. She reiterated this commitment in her speech.
Implications for households, business and politics
The prospect of tax rises—even the suggestion of them—already had a market effect: the pound fell to a seven-month low against the dollar following the speech.
For households, the messaging signals potential tightening ahead, at a time when living-cost pressures remain high. For business, especially those sensitive to tax policy and investment decisions, the signal is that the government may prioritise stability and debt reduction over giveaway measures.
Politically, Reeves is balancing the risk of alienating voters over tax hikes versus the credibility risk of failing to meet fiscal rules or growth ambitions.
What’s next and key milestones
•The OBR’s updated forecasts are expected soon, and if they confirm a large fiscal hole, pressure for tax rises will intensify.
•The Autumn Budget on 26 November 2025 is the key event where detailed tax and spending decisions will be laid out.
•Monitoring will focus on whether Reeves sticks to her fiscal rules while also delivering on her stated agenda of “growth with fairness at its heart”.
