Autumn Budget 2025: A budget built on the promise of future taxes

Yesterday, the Chancellor presented one of the largest tax raising budgets in the past fifty years. We analyse the tax raising measures announced in the Autumn Budget 2025 and their long-term impact.

Although this Budget didn’t include increases to the rate of tax on employment income, national insurance contributions or VAT, it still managed to deliver an additional £26bn of taxes. 

Most of the measures announced will be borne by individuals, rather than businesses, with the Chancellor stating she was “asking everyone to make a contribution to repair the public finances.”

Significantly, the bulk of these tax raising measures are not scheduled to be introduced until 2028, with salary sacrifice changes coming into force even later in 2029. While this may create some relief for those affected by the changes, it also adds uncertainty into the system by relying on tax revenues being raised in future years to cover spending and borrowing happening today. In the meantime, behaviours may change, economic growth may falter, or unexpected world events could occur, impacting the ability of the Budget to fully realise its aims.  

Below is a summary of the highest income raising measures introduced and an analysis of their impact:

Freezing of tax thresholds until 2031

A further three year freezing of income tax and national insurance thresholds until the end of the fiscal year 2031, is expected to raise an additional £8bn. Due to the effect of fiscal drag (salaries and pensions rising with inflation while income tax thresholds stay the same), this freeze will mean that more people will be pulled into higher tax bands or start to pay tax for the first time. Pensioners and part-time workers on low incomes will particularly feel the effects, as their incomes go above the personal allowance for the first time. 

This approach achieves the same outcome as increasing tax rates, as it results in more individuals paying more tax, but in a much less transparent or direct way. For HMRC, it will have to manage its considerable resource strains to deliver the tax measures announced in the Budget.    

In Scotland, the rates and thresholds for income tax are set by the Scottish Government - with the exception of the personal allowance which is set by the UK Government. This means that the freezing of the personal allowance will directly affect Scottish taxpayers and those on lower incomes may find themselves paying tax for the first time. 

The impact for Scotland will also be felt in the block grant, which is the funding Scotland receives from the UK Government. Due to the way it is calculated, the raising of income taxes via threshold freezes will reduce the amount included in Scotland’s funding. The amount that the UK Government would have raised if the measure had applied in Scotland is adjusted to the block grant. In this case the UK Government would have raised more tax if devolution did not exist, so the adjustment will be a reduction. 

Scottish Finance Secretary, Shona Robison, has confirmed that there is no intention to change the rates and thresholds in Scotland during this parliament as she wants to deliver certainty to Scottish taxpayers. Fiscal drag is more pronounced in Scotland due to the seven income tax bands (including the personal allowance) so freezing income tax thresholds will have a larger impact for Scottish taxpayers. But the full effect for Scotland will be seen at the Scottish Budget on 13 January 2026. 

Cap on salary sacrifice pension contributions from 2029

The introduction of a new £2k cap for national insurance on pension contributions for salary sacrifice schemes will raise a further £4.7bn, which will apply across the UK. 

Salary sacrifice allows both employees and employers to save on National Insurance Contributions. Employees may sacrifice part of their salary for non-cash benefits such as pension contributions. This reduces the taxable income of the employee and so the amount that both employer and employee national insurance (as well as income tax) is calculated on. The Budget changes mean that the pension contributions under salary sacrifice will only be exempt from national insurance for the first £2k, with the remainder subject to employer and employee national insurance contributions as normal. There will be no effect to income tax for salary sacrifice schemes. 

This change introduces an added layer of complexity as employers must adjust their systems to take account of the new cap. It will also be an added cost for employers, likely resulting in businesses deciding to reduce the generosity of existing pension contributions or to reconfigure compensation packages or pension schemes. 

For savers, it adds uncertainty into the pension system and could discourage saving. Pension systems require long term stability as people make decisions on this throughout their working lives. Disruption therefore has the potential to create a dysfunctional system. 

Tax increase on property income, dividends and savings income

The tax rate for property, dividends and savings income will increase by two percentage points and is expected to raise an additional £2.1bn. The impact to the tax rates is as follows: 

• Increase the dividend ordinary rate to 10.75% and the dividend upper rate to 35.75% from 6 April 2026
• Increase the savings basic rate to 22%, the savings higher rate to 42% and the savings additional rate to 47% from 6 April 2027
• Set the tax rates applicable to property income from 6 April 2027 — the property basic rate will be 22%, the property higher rate will be 42% and the property additional rate will be 47%

The Scottish Government can only set income tax rates and bands on non-savings non-dividend (NSND) income, so these changes to dividend and savings rates will apply in Scotland. Coupled with changes to the Cash ISA allowance and the pension salary sacrifice scheme, these measures may discourage savings and investment. 

Property income is devolved to Scotland, so these changes will not apply here. Landlords in Scotland will therefore not be affected by the 2% increase to property income, but it may put pressure on the Scottish Government to make similar changes in the Scottish Budget. 

Many small measures with a big impact 

In summary, this Budget delivered a host of small tax measures adding further complexity to an already complex system. The freeze in thresholds will create more taxpayers through fiscal drag, but in turn create more administration for HMRC. For taxpayers, the lack of transparency, particularly in the threshold freezes, may mean that the additional tax cost is not immediately seen or understood.