Autumn Budget 2025: prediction and policy pitfalls

Fairness, Feasibility, and the Fragile Art of Fiscal Balance

Dr Giray Gozgor is an Associate Professor of Economics and Finance at the School of Management, University of Bradford

As Chancellor Rachel Reeves prepares to deliver the Autumn Budget on 26 November, a University of Bradford economist warns that the challenge is “not just fiscal, but moral.” Dr Giray Gozgor argues that tax rises alone won’t close the gap and could harm growth unless paired with investment and transparency. His analysis calls for smarter taxation—fair, feasible and trust-driven—to turn fiscal realism into economic renewal. 

When Chancellor Rachel Reeves delivers her Autumn Budget on 26 November 2025, she will do so under intense scrutiny. Growth has nearly stalled at 0.3 per cent, borrowing costs remain high, and public services are visibly under strain. The challenge she faces is not solely fiscal but also moral: how to raise revenue without undermining public trust or jeopardising the fragile recovery. 

Several measures are being discussed, including adjustments to income tax and pension relief, as well as potential reforms to property and savings taxation. While these ideas each follow a fiscal rationale, their wider economic viability depends on how households, firms and markets respond. 

Income Tax: Costly for Government Trust

A modest increase in the basic rate of income tax is a topic of widespread discussion. However, even small changes can affect behaviour. Keynesian models remind us that higher direct taxes reduce disposable income and weaken consumption, especially if applied evenly across income groups. Focusing the increase on higher earners would lessen this effect. Since wealthier households save a larger share of their income, their marginal propensity to consume is lower, leading to a smaller reduction in overall demand. A progressive approach would therefore safeguard short-term growth while maintaining fiscal credibility. 

 

Pension Relief: The Risk of Undermining Saving 

Tightening pension tax relief for higher-rate taxpayers may appear fair, but the economics of intertemporal choice offer a warning. The life-cycle hypothesis suggests that when after-tax returns on savings decline, individuals tend to consume more in the present and save less for the future. In a country already dealing with demographic challenges and pension underfunding, reducing incentives to save can harm long-term capital formation. A more equitable compromise would involve gradually tapering relief rather than imposing sudden limits, and any resulting savings could be used to expand pension participation among younger and lower-income workers. 

 

Property Taxation: Fair in Theory but Complex in Practice 

The prospect of a “mansion tax” or new upper bands for council tax has re-entered the debate. Economically, property levies are among the least distortionary forms of taxation, as they are difficult to avoid and do not penalise labour or enterprise. However, the UK system remains based on property values from 1991, making it both outdated and regressive. Updating valuations and introducing upper-band increments would modernise the system, but any reform must account for regional disparities. To avoid penalising those who are asset-rich but cash-poor, payments can be deferred until sale or inheritance. 

 

Landlord Taxes and Market Realities 

Another proposal, extending National Insurance to rental income, seeks to equalise treatment between earned and unearned income. However, tax incidence theory suggests that in a market with an inelastic housing supply, landlords would pass most of the burden on to tenants through higher rents. Consequently, the policy can worsen, rather than improve, affordability issues. If the government wishes to reform property income taxation, it could instead link reliefs to social outcomes, such as rewarding landlords who invest in energy-efficient upgrades or offer longer-term tenancies. 

 

Savings and Behavioural Economics 

Rumours of a reduction in the cash ISA allowance suggest an attempt to encourage savers to take on riskier investments. However, behavioural economics shows that people are not purely rational decision-makers. According to prospect theory, individuals are strongly loss-averse: they prefer a small, guaranteed return over uncertain gains. Cutting safe-saving options might discourage saving altogether, weakening household resilience. Instead of reducing allowances, the government could broaden choice by introducing green or infrastructure-linked ISAs that channel savings into productive investment. 

 

The Bigger Picture: From Revenue to Renewal 

Even if all the measures were implemented, estimates suggest they would generate only around £20–25 billion, barely half of the projected fiscal gap. More fundamentally, the UK economy is already tax-heavy but investment-poor. The tax burden stands near a post-war high of 37 per cent of GDP, yet private investment remains among the lowest in the OECD. Economic theory highlights the crowding-out effect, whereby the state’s increased absorption of resources, without corresponding productivity gains, can lead to a decline in private investment. Therefore, any tax increases must be accompanied by credible commitments to growth-focused expenditure, on skills, infrastructure and innovation, to ensure that fiscal discipline supports, rather than hinders, long-term prosperity. 

 

Trust as Fiscal Capital 

Public finance fundamentally relies on trust. Research into fiscal credibility shows that citizens are more likely to accept higher taxes when policies are transparent, equitable and clearly linked to shared goals.  

 

Therefore, the goal of the Autumn 2025 Budget should not be to tax more, but to tax better. With open dialogue about who pays and how the money is spent, fiscal realism can become a foundation for renewal rather than restraint.