Employers need to be prepared for the potential of “further measures on tax” as the chancellor admitted that tax rises are still an option for her Autumn Budget on 26 November, 2025.
Ahead of an International Monetary Fund (IMF) meeting in the US, Rachel Reeves told reporters: “I’ve always been very clear that we will continue to prioritise economic and fiscal stability in the UK.
“As we get the forecast, and as we develop our plans, of course we are looking at further measures on tax and spending, to make sure that the public finances always add up.”
But even modest tax changes can cascade through pay review cycles, salary benchmarking, and reward strategies, meaning employers need to be ready.
In an earlier interview, Reeves said austerity policies and former prime minister Liz Truss’s mini-budget had damaged the UK economy.
The chancellor also stressed that Brexit had had “severe and long-lasting” impacts on the UK economy.
In addition to tax increases, public spending cuts are also under consideration.
Reeves told Sky News: “Challenges are being thrown our way, whether that is geopolitical uncertainties, the conflicts around the world, the increased tariffs and barriers to trade.
“But I won’t duck those challenges. Of course, we’re looking at tax and spending as well, but the numbers will always add up with me as chancellor because we saw just three years ago what happens when a government, where the conservatives lost control of the public finances… inflation and interest rates went through the roof.”
However, public spending cuts could be tricky as previous government efforts to reduce spending on winter fuel payments for pensioners were ultimately reversed after a public backlash.
At the recent Labour Party Conference, Reeves said the government was facing difficult choices and promised she would not take risks with the public finances.
She promised delegates she would work to ensure taxes, inflation and interest rates were kept “as low as possible”.
In its 2024 manifesto, Labour promised not to raise income tax, VAT or corporation tax, which is paid by companies on their profits.
However, it also pledged it would not raise national insurance, which caused consternation when the government then increased employer NI contributions. Commentators pointed out that a tax on employers would impact workers too.
Referring to the chancellor’s potential tax hikes, Martin Beck, chief economist at WPI Strategy, said: “This is a worrying signal for growth prospects and the UK’s ability to narrow the productivity gap with more dynamic economies.”
He told the Telegraph: “Excluding the pandemic period, the gap between UK and US income per head is already the biggest it’s been since the late 1990s.
“The productivity-sapping effect of ever-higher taxes threatens to make the UK even more of a laggard. It also signals that the UK is leaning more on revenue-raising than on growth-friendly reforms to address its fiscal problems, a stance that could weaken its long-term productivity and international competitiveness.”
