Workers Could Pay Thousands More In Income Tax? Which Tax Policies Might Be Affected by the Autumn Budget?
- TBA
- Nov 14
- 5 min read
Have you been following the latest financial news in the UK?
It seems that every time one opens a news site, words like ‘inflation’, ‘unemployment’, ‘rising debt’ and ‘fiscal deficit’ appear.
Each headline seems to tell the same story — that the UK’s public finances are on increasingly shaky ground.
According to current data, the UK is caught in a fiscal dilemma combining ‘high debt and high deficit’ with ‘low growth and high inflation’. The result is a vicious cycle between weak economic fundamentals and worsening fiscal health.
Official figures show that as of September in the current financial year, public sector net borrowing reached £99.8 billion — £7.2 billion higher than forecasts by the Office for Budget Responsibility (OBR), marking the second-highest level for the same period since records began in 1993 (excluding the pandemic years).
Borrowing in September alone reached £20.2 billion — slightly below expectations but £1.6 billion higher than a year earlier — with debt interest payments hitting a record high for any September, driving the overall rise in expenditure.
Meanwhile, the national debt continues to hover at alarming levels. As of September, public sector net debt stood at 95.3% of GDP, up one percentage point from a year earlier. Debt interest payments are projected to reach £111 billion in the 2025/26 financial year — surpassing the education budget and placing enormous strain on public finances.
Worsening inflation and a weakening labour market have further compounded the challenge. Consumer Price Index (CPI) inflation for 2025 is expected to rise by 3.4%, driven mainly by energy and regulated prices.
The unemployment rate has climbed to 4.7%, while the ongoing decline in job vacancies reflects declining business confidence — companies are reluctant to hire when their profit margins are under pressure. Compounding the problem, productivity growth remains weak, with average annual growth over the next five years expected to be just 0.4%.
Many analysts attribute this stagnation to the after-effects of Brexit and years of underinvestment, which have eroded the economy’s internal growth momentum and limited fiscal flexibility.
Workers may end up paying thousands more in Income Tax
In the Autumn Budget announced in October 2024, Chancellor Rachel Reeves revealed that from April 2025 the employer National Insurance (NI) rate would rise from 13.8% to 15%, and the threshold for employer NI contributions would be lowered from £9,100 to £5,000 per year. These two measures are expected to raise £25 billion annually, making them the largest revenue-raising changes in the budget.
Although employers are responsible for paying NI, the OBR estimates that 60% of the cost will be passed on to workers through lower wages or higher consumer prices. This effectively means employees could see their real incomes shrink as businesses adjust to higher costs — an indirect form of taxation.
HMRC data shows that the government’s freeze on income tax thresholds has already brought in £154.18 billion between April and September this year — £12.41 billion more than in the same period last year. Under Conservative leadership, the income tax threshold freeze was set to last until 2027–28, but many now expect Reeves to extend it further to 2029–30 in the next Autumn Budget.
While extending the freeze on income tax and NI thresholds could raise an additional £10.4 billion in revenue, HMRC estimates that it also pushes more taxpayers into higher tax bands. As wages and savings income rise with inflation, many people who previously paid the basic rate now cross the 40% threshold and are taxed on their additional income at the higher rate — about 520,000 more taxpayers in total.
This so-called ‘fiscal drag’ effect increases the tax burden even when real purchasing power has not significantly improved. As a result, average earners could end up paying thousands more in income tax by the end of the decade.
For ordinary employees, this highlights the growing importance of sound financial planning and effective tax management. After all, wage growth may not keep up with inflation.
What tax changes might the 2025 Autumn Budget bring?
The 2025 Autumn Budget is scheduled for 26 November, more than a month later than last year.
Although no official announcements have been made, there has been widespread speculation about potential changes.
The following are among the most discussed possibilities. However, it’s important to note that these are only for reference and discussion. The final details will depend on official government statements.
1. Inheritance Tax reform
Reports suggest that the Chancellor plans to impose a 40% inheritance tax on private pension wealth starting in April 2027, while also reducing allowances available to farmers and businesses. She may also consider setting a lifetime cap on the value of gifts that can be passed on before death to prevent people from using them to reduce their inheritance tax bills.
There is also speculation that Reeves could expand inheritance tax to target property wealth, for example by abolishing the current £175,000 residence nil-rate band or removing the rule that exempts estates worth less than £325,000 (including property and other assets) from inheritance tax.
2. Income Tax changes
Some reports suggest Reeves might reduce National Insurance by two percentage points to ease the social security burden on workers, while simultaneously raising income tax rates to maintain or slightly increase total tax revenue.
The goal would be to broaden the taxpayer base, requiring pensioners, landlords and self-employed individuals — who do not currently pay NI — to contribute more through income tax.
If implemented, this change could affect around 8.7 million income-tax-paying pensioners and 4.3 million self-employed individuals across the UK.
Aside from these two major points of speculation, others believe the Chancellor may instead choose to raise VAT or continue freezing income tax thresholds to generate revenue and close the fiscal gap.
Some advice from TB Accountants
You can help manage potential tax pressures by:
Optimising your pension contributions to make full use of tax reliefs
Reviewing compensation adjustments in wage negotiations to offset cost pass-through from employers
Consulting a professional tax adviser to assess how capital gains tax and inheritance tax might affect your financial planning and asset structure
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