A missed opportunity? Reviewing the 2025 Autumn Budget

Another year, another red box – accompanied, unusually, by a sneak preview of its contents half an hour ahead of delivery, courtesy of the Office for Budget Responsibility (OBR) website and particularly ingenious reporters.

UK Chancellor Rachel Reeves’ goal for this Budget was simple: stabilise the public finances without incurring too much political damage. Against an economic backdrop best described as unkind, this was a piece of policy designed to shore up Labour’s political standing with an electorate that is increasingly mutinous after many years of stagnant living standards. 

Measured against the government’s own political success criteria, the provisions outlined mostly did the trick, at least in the short term. The Chancellor gained plaudits for raising her fiscal headroom to £22bn from £10bn – a clear signal of her commitment to fiscal rules, at least on paper. The relatively muted reaction from bond markets will also have been a relief: on 26 November yields on the benchmark 10-year gilt dropped from around 4.5% to 4.4%, with some mid-day volatility caused largely by the OBR leak. Many Labour backbenchers will welcome the spending proposals. Lifting the two-child benefit cap will lift 450,000 children out of poverty at a cost to the Exchequer of just £3bn (around 0.1% of GDP). Given the importance of early-years development to educational and career outcomes, many have declared that this is a laudable move.

However, it is difficult to argue that simply increasing the government’s tax take without any accompanying reform will provide meaningful solutions. Taxation as a share of GDP will hit 38% by 2030–31, its highest ever peacetime level. This article is not here to make sweeping generalisations about whether it is preferable to raise taxes or cut spending in response to fiscal constraints. The real issue, economists argue, is that Reeves’ tax-raising measures were a collection of small levies ultimately designed to balance the books, rather than forming part of a coherent growth strategy. 

Some of these measures are sensible. The remote gaming duty, levied on online casinos, was almost doubled from 21% to 40%. These so-called “sin taxes” are generally considered a comparatively innocuous way of raising money. They increase revenue while also providing incentives to move away from societally harmful behaviours – the mental and physical health consequences of gambling are well documented. At the same time, however, Reeves abolished the 10% levy on bingo. Notwithstanding the social benefits of bingo for senior citizens, it appears inconsistent, an issue that colours many of the proposals.

Many other taxes are small enough to be easily avoided (note the difference between avoidance and evasion – the former is legal; the latter is fraud). Some homeowners are now pricing their houses just below the £2mn mansion tax threshold. Not only does this distort property prices, it is also expected to cost the Treasury £330mn in lost stamp duty receipts even before the tax itself takes effect in 2028. 

What were the alternatives? Raising income tax could have been a simple and effective method of fiscal consolidation. Because everyone pays income tax, it is far harder to avoid than many of the smaller levies that are being adjusted. It would also have been more progressive than the adopted policy of freezing bracket thresholds, because the wealthiest individuals earn most of their income in the highest band already and will not see much change in their tax burden under the current measures. However, Reeves was understandably desperate not to break a manifesto pledge and chose instead to raise the money through piecemeal adjustments elsewhere.

It has been said before, but it bears repeating: Britain needs a simpler tax code. Distorted incentives are rife, some of which have been discussed previously in this column. In addition to the regressiveness of council tax and the 60% marginal tax trap, dividends and capital gains are taxed at differing rates to labour income. Similarly, primary residences are also exempt from capital gains tax. These measures create inconsistencies that could use serious reform. However, there is still time in this parliament to address the issue.

More seriously, the Budget’s provisions see borrowing rise compared to previous expectations throughout the next three years. Fiscal consolidation only begins to bite in 2029, by which time the incumbent Labour government may already be out of office. This column has expounded at length on the dangers of political myopia leading to poor economic policymaking. Faced with the pressures of an impending election year, Reeves (or her successor) may be tempted to walk back some of the announced tax rises in a last-ditch attempt to win back votes.

It is impossible to cover every aspect of the fiscal proposals. That said, it is also worth acknowledging much of what was left unsaid. Britain’s low productivity growth remains a critical issue. Amid the uproar over the leak, the OBR’s revisions to productivity went largely overlooked – a 0.3 percentage point fall in retrospective productivity expectations could have cost the Treasury £16bn in lost tax revenues. Although this was avoided because of higher nominal tax receipts driven mostly by inflation, it provides a clear warning that the UK’s fiscal position will not improve in future years unless growth picks up. The Budget contained precious little aimed at boosting productivity. Consolidating innovation spending (which is currently distributed across various bureaucratic agencies) could have been a near-costless way to provide a small boost and support the UK’s comparatively weaker research and development sector. 

The 2025 Autumn Budget achieved its fundamental political goal of sticking to the government’s fiscal rules. That did not stop it from sometimes feeling like an accounting exercise rather than an opportunity to prioritise productivity growth while maintaining fiscal discipline. Economists broadly agree that radical tax reforms are needed to set Britain on the path to sustained growth. There are probably three Budgets remaining in this parliament. They can only hope that Labour takes its chances while it still has them. 

The views and opinions expressed in this article belong solely to the writer and do not necessarily reflect the views and opinions of the Warwick Economics Summit.

Reference list

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7. Jolly, Jasper. “‘A Bit of a Relief’: A City Trading Floor Reacts to Reeves’s Budget.” The Guardian. The Guardian, November 26, 2025. https://www.theguardian.com/uk-news/2025/nov/26/london-city-trading-floor-reaction-rachel-reeves-budget.

   
   

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11. Morton, Becky. “Two-Child Benefit Cap to Be Scrapped from next Year.” BBC News, November 26, 2025. https://www.bbc.co.uk/news/articles/cwyx4ggyj44o.

    
    

12. Office for Budget Responsibility. “Economic and Fiscal Outlook – November 2025 - Office for Budget Responsibility,” November 26, 2025. https://obr.uk/efo/economic-and-fiscal-outlook-november-2025/.

    
    

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14. The Economist. “This Bodge-It Budget Does Not Give Britain What It Needs.” The Economist, November 26, 2025. https://www.economist.com/leaders/2025/11/26/this-bodge-it-budget-does-not-give-britain-what-it-needs.

    
    

15. UK Research and Development Roadmap,” 2020. https://assets.publishing.service.gov.uk/media/5efb9799e90e075c59a7b3f9/UK_Research_and_Development_Roadmap.pdf.