The Road to the Autumn Budget 2025: What You Need to Know
As we approach the Autumn Budget 2025, several key developments and forecasts have been outlined in the recent Spring Statement, providing valuable insights into the economic and fiscal landscape of the UK. Here is a comprehensive overview of what these changes mean for individuals, businesses, and the broader economy.
Rising Tax Burden
One of the most significant takeaways from the Spring Statement is the anticipated rise in the tax burden. According to the Office for Budget Responsibility, tax as a share of GDP is forecast to increase from 35.3 per cent this year to a historic high of 37.7 per cent by the 2027 to 2028 tax year.
This increase is largely driven by two factors: the rise in employer National Insurance Contributions effective from April 2025, and the phenomenon of fiscal drag. Fiscal drag occurs when frozen tax thresholds combine with rising wages, pushing more workers into higher tax bands. For instance, the income tax thresholds, which have been frozen since 2022, will only be uprated in line with inflation from the 2028 to 2029 tax year. This means many more individuals will be pulled into the higher and additional rate tax bands, currently set at fifty thousand two hundred and seventy one pounds and one hundred and twenty five thousand one hundred and forty pounds, respectively.
Economic Growth and Inflation
The Office for Budget Responsibility has revised its GDP growth forecasts downward for 2025, from 2 per cent to 1 per cent. However, it has slightly raised its forecasts for the subsequent years. This adjustment reflects ongoing economic uncertainties, including higher borrowing costs and stronger-than-expected inflation.
Annual inflation is expected to average 3.2 per cent in 2025, fall to 2.1 per cent in 2026, and eventually reach the Bank of England’s 2 per cent target in 2027.
The inflation outlook is closely tied to factors such as energy prices, food price inflation, and wage growth. As energy prices decline and food price inflation eases, along with reduced pressure from wage increases, CPI inflation is expected to return to around 2 per cent from 2026 onwards.
Key Tax Changes and Policies
Several tax changes and fiscal measures were announced in the Spring Statement and the Autumn Budget 2024. Below are some of the important points to consider:
National Insurance Contributions
From April 2025, employer National Insurance Contributions will increase. This contributes significantly to the growing tax burden.
VAT on Private School Fees
Beginning 1 January 2025, private school fees will be subject to VAT. This measure was announced in the Autumn Budget 2024.
Payrolling Benefits
From April 2026, the traditional system of submitting P11D forms will be replaced by mandatory payrolling of benefits. This marks a major change in how employee benefits are reported.
Corporation Tax
The government has committed to maintaining the main rate of corporation tax at 25 per cent for the duration of this Parliament. Full expensing relief will also continue. Additionally, the 100 per cent first year allowances for zero-emission cars and electric vehicle charge-points will be extended until 31 March 2026.
Spending and Fiscal Rules
Chancellor Rachel Reeves has made adjustments to long-term spending plans in order to meet the new fiscal rules introduced in the Autumn Budget 2024. These rules insist that the current budget be in surplus by 2029 to 2030, and that public sector net financial liabilities, as a percentage of GDP, be falling by the same period.
The Spring Statement includes cuts to day-to-day spending in the later years, while increasing investment spending—particularly in the area of defence, which is set to reach 2.5 per cent of GDP by 2027. This redirection is partially funded through reductions in overseas aid.
Implications for Businesses and Individuals
For businesses, the stability in corporation tax rates and continued reliefs for capital expenditure and intangible assets provide a degree of certainty. However, the increase in employer National Insurance Contributions and other tax measures will raise operational costs. The inclusion of VAT on private school fees and the shift to payrolling benefits also require forward planning and system adjustments.
For individuals, the rising tax burden and the effect of fiscal drag mean increased tax liabilities. The High Income Child Benefit Charge remains active, affecting families where the highest earner makes over sixty thousand pounds per year.
Preparing for the Autumn Budget
Given the range of changes and forecasts laid out, it is essential for both businesses and individuals to prepare in advance of the Autumn Budget 2025. Below are some key steps to consider:
Review Tax Thresholds
Evaluate how the frozen tax thresholds combined with increasing wages might affect your tax liability.
Plan for National Insurance Increases
Businesses should include the forthcoming changes to employer National Insurance Contributions in their financial planning from April 2025.
Comply with VAT Changes
Prepare for the implementation of VAT on private school fees and stay up to date with other Value Added Tax adjustments.
Adjust to Payrolling Benefits
Modify your payroll systems to ensure compliance with the new payrolling benefits regime starting April 2026.
Monitor Economic Forecasts
Track future GDP growth and inflation trends to make informed financial and strategic decisions.
In conclusion, the lead-up to the Autumn Budget 2025 comes with notable changes in taxation, economic growth expectations, and fiscal policies. By remaining informed and preparing effectively, individuals and businesses can position themselves to adapt to the evolving economic environment.
At Cutts and Co Accountancy, we are dedicated to helping you understand and respond to these financial developments. Our experienced team is here to provide advice and support, helping you navigate the implications for your personal or business finances. If you have any questions or would like further assistance, please do not hesitate to reach out to us.
