All You Need to Know Before the Budget

As many readers would know, there has been a sea of news about the budget being thrown around in the past few weeks. The budget is a statement made by the Chancellor, Rachel Reeves, to MPs in the House of Commons, presenting the government’s plans for the economy, including changes to taxation and spending. The date of the budget is set on the 26^thof November, 2025.

At the outset, the date was criticised by Scotland’s Finance Secretary as ‘delayed’ and that it is now ‘highly unlikely’ the Scottish Government can bring forward its own budget before Christmas. A good start indeed.

Here, I will pick out the main takeaways from what we have heard so far from Reeves, the impact of the uncertainty as of now, and the potential impact on law firms.

The Context

To understand the budget and why it is the way it is, we must understand the current economic conditions in the UK.

Firstly, we have inflation. It is currently posited at 3.6%, slightly above the target of 2% +- 1%. According to Andrew Bailey, head of the Bank of England, it is largely due to the increase in good prices and administered prices. Administered prices are prices directly set or influenced by decisions from the government or regulators, e.g., increases in water bills, etc. With an emphasis on economic growth from this government, concern is rising about how it can be achieved without exacerbating existing inflationary pressure. Brexit, of course, is also blamed by the Labour Government as a contributory cause of this. The risk of high inflation makes it challenging for Reeves to balance tax and spending.

Then, productivity. As the name suggests, productivity measures the output of the UK’s labour market. Although it has been declining since the financial crisis in 2007, with average output per worker being 16% lower than G7 average per the ONS, Labour have identified it's improvement as a central point in their economic plan. The OBR has downgraded its forecast for productivity by 0.3 percentage points. The Institute for Fiscal Studies think-tank has calculated that for every 0.1 percentage point downgrade in the productivity forecast, government borrowing would increase by £7bn. Hence, a 0.3 point cut could add £21bn to the Budget hole that Reeves is expected to fill in late November.

Moving on to government debt/ borrowing. This is the difference between public spending and tax income. It is also the ‘hole’ that I have previously mentioned. As it is extremely difficult to calculate, it is estimated at between £20bn to £40bn.

Lastly, as we can probably extrapolate from the information above, the UK economic growth is not ideal. The latest figure shows that the UK economy grew by an impressive 0.1% between July and September.

Now let’s look at what could potentially be in the Budget.

Potential Tax Rises + Breaking the Manifesto

For Reeves to close the government’s borrowing gap, she needs to increase tax and reduce spending.

Here are the proposed changes:

1.     Income Tax and National Insurance

Reeves was planning to increase income tax, thereby breaking the Labour Party’s manifesto of not increasing it. This led to outrage from the general public and political chastisement from other parties in Parliament. So, Reeves quickly killed that thought.

Instead, she is likely to extend the freeze on income tax and National Insurance thresholds. Freezing thresholds means that as salaries rise over time, more people enter or reach the threshold above their current ones and start paying or to pay higher tax rates.

2.     Pensions

Reeves can raise about £2bn by limiting a tax break on pension contributions. However, that will mean that pensioners will have to start paying more taxes, which is a rather controversial idea.

3.     Property taxes

She is also planning to increase property taxes and introduce a new one on high-value homes. About 2.4 million properties will be affected.

These are the main tax changes in the Budget; there is also a potential new tax for EVs and non-tax policies like the two-child benefit cap.

Law Firm Involvement

There are two main ways in which law firms can be involved.

Firstly, the tax department will have a heavy workload prior to and after the Budget. This is particularly relevant to law firms that have a strong private client practice area, e.g., Macfarlanes, Mishcon de Reya, or Taylor Wessing. This is due to the tax changes mainly affecting individuals instead of businesses.

Secondly, public law and regulatory teams may also see an uptick in work. Any major fiscal event, especially one involving controversial or unexpected tax measures, tends to attract legal scrutiny. If Reeves introduces measures that arguably conflict with the Labour manifesto, or if the Budget results in sudden financial burdens on specific groups (such as property owners or pension savers), this could trigger judicial reviews from affected stakeholders. Similarly, local authorities and regulatory bodies may require legal advice to implement changes to property taxation or benefit caps.