The 2025 Autumn Budget

A budget for welfare paid for by workers

DC pensions

Pension contributions made by salary sacrifice are to be subject to national insurance. This is a measure that really only impacts the private sector as public sector workers still enjoy final salary schemes. As I've said before it's becoming tougher to make long term plans when taxes are subject to short term decisions. It started with Gordon Brown's raid on dividend tax credits which took away 20% of a pension fund's investment income. It carried on with making unspent pension fund subject to inheritance tax (from 6 April 2027) and now it adds NI to pension contributions (from 6 April 2029). This will, essentially, reduce the pensions of private sector workers while public sector workers, like Rachel Reeves, suffer no adverse effect at all.

Fiscal drag

This used to be a phrase only known to policy wonks, now most of us understand it. Tax allowances and tax bands are to be frozen for a few extra years until 6 April 2031. They will have been frozen for a decade by then. The actual allowances and rates don't change so Rachel can say she hasn't broken the manifesto promise but what happens is the effect of inflation means people have no more purchasing power but their average tax rate goes up.

Sundry small tax increases

These don't really help as they are lost in the rounding. They are the budgetary equivalent of looking down the back of the sofa. They are the politics of envy. Got a nice house? that will be £2,500 please. Got unearned income, another 2% please and, in addition, the order in which is income is taxed will be fixed so it is salary first, then rents, savings and finally dividends. Sin taxes all up. Cash ISA allowance reduced to £12,000. The 3p/mile on EV's was always going to happen though as they need to replace fuel duty. Watch that one creep up.

That's it?

Well, no. It's clear enough the government is struggling to balance the books but they have boxed themselves in with election promises. This won't hold unless they get the welfare bill under control, and they show no signs of doing that. So they will be back for more in a year or two. Already about 23% of the working age population is on some sort of benefit. Add pensioners to that and you end up with about half of families receiving money from the state. You can't just keep redistributing money from those who work to those who don't because you incentivize economic inactivity.

As a parting shot you might be aware of the mountain of visible government debt but there's also about £1.3trillion of unfunded public sector pension liabilities and nobody has even started thinking about where all that is coming from.

In brief...