Will taxes rise this year following Rachel Reeves’ spending plan announcement?

Back in June, Rachel Reeves unveiled her multi-year spending review, the UK’s first since 2021.

Setting out the day-to-day spending and investment budgets of government departments, it provides a snapshot of the chancellor’s priorities for this parliament and beyond.

While housing, health, and defence could be considered “winners”, other areas lost out.

Since then, further economic bad news has followed. Growth is down, inflation is up, and the Office for Budget Responsibility (OBR) confirms that the risks to our economy remain “daunting”. The BBC suggests that government debt could reach three times the size of the economy in the years ahead.

So, what was announced in the spending review? Why does it matter? And could tax rises be on the cards in this year’s Autumn Budget?

The spending review allocates day-to-day and capital spending across government departments

The chancellor used her 2024 Autumn Budget to rewrite the fiscal borrowing rules she must abide by. These changes provided her with an extra £113 billion in capital spending, to be allocated alongside the day-to-day resource spending announced.

Of the capital spending budget:

• £15 billion has been allocated to transport outside London
• £14.2 billion will be spent on the Sizewell C nuclear power plant.

A further £10 billion has been earmarked for improving NHS technology, most noticeably for the NHS App.
Social housing is set to receive £39 billion between 2026 and 2036.

On a day-to-day basis, the chancellor announced:

• An average 7.4% real-terms budget rise for the Department for Science, Innovation and Technology
• A 3% average annual increase to the budget for the NHS in England over the next three years, factoring in inflation.
• A Ministry of Defence budget increase of 0.7% in real terms.

The spending review should be considered in the context of the overall economic outlook

Rachel Reeves confirmed the total amount she planned to spend up to 2028/29, known as the “spending envelope” in her Autumn Budget. But the sending review, which effectively allocates that sum, is seen (by the Institute for Fiscal Studies (IFS) at least), as “one of the most significant domestic policy events of this parliament”.

In its commitment to health, defence, and housing, it clearly outlines the government’s priorities as it looks to encourage growth, avoid a return to austerity, and plug the £22 billion “black hole” left by the previous government.

And it needs to do all this in an economic and geopolitical landscape which is, at best, volatile.

The Office for National Statistics (ONS) confirm that inflation jumped unexpectedly in the 12 months to June.

The Consumer Prices Index (CPI) reached 3.6%. This is above the Bank of England’s (BoE) 2% target and threatens the hoped-for cut to interest rates when the BoE’s Monetary Policy Committee (MPC) meets again on 7 August.

In another blow for the chancellor ahead of her second Budget in the autumn, UK GDP shrank in May. According to Reuters, this was contrary to a forecasted bounce back. The 0.1% contraction for May followed a 0.3% drop in April.

The chancellor’s spending plans are based on Labour’s manifesto promise to boost growth, and as such, these figures will be worrying. Reeves will also need to find the additional funds “lost” to the government’s recent welfare U-turn.

Tax increases are likely as Reeves looks to keep for economic plans on track

While it’s too early to say how the chancellor will look to balance the books, autumn tax increases are likely. These could come in the form of rate rises, threshold freezes, or wider reform.

We could see an extended freeze to Inheritance Tax rates, designed to capitalise on the Great Wealth transfer that is now well underway, and would see more estates fall into the IHT net.

Tax freezes on National Insurance (NI) and Income Tax thresholds originally introduced by the previous Conservative government could be extended. Such a freeze would amount to a stealth tax on workers.

Capital Gains Tax (CGT) could also be in the firing line once again. A report from the Office of Tax Simplification (OTS) back in 2020 recommended a reduction in CGT rates, which has now occurred. But they also suggested aligning CGT rates with Income Tax rates, which would amount to a significant increase and can’t be ruled out for the autumn.

Get in touch

Whatever the 2025 Autumn Budget brings, we’ll be on hand to offer reassurance and guidance to mitigate any tax rises.

If you have any questions or concerns in the meantime, please reach out to your Foster Denovo adviser by emailing advise-me@fosterdonovo.com or calling 0330 332 7866 for more information.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate taxation advice.