Autumn Statement 2025 | The perils of speculation

Parents standing in the queue for the Ghost Train at the recent Chipping Norton Mop Fair, alongside their excited offspring, could hardly have been more apprehensive than many of us feel about the upcoming Budget. Every day we hear news about the Financial Black Hole (financial holes are always black, it seems) that yawns ever wider (£40bn now apparently) and threatens to swallow us up.

Think back to the halcyon days of the late ‘90s, with a long period of economic growth allowing for generous spending on education, health and welfare. Progressively falling interest rates and low inflation meant we enjoyed an extended period of growing prosperity. With some exceptions, the world was a relatively peaceful place, meaning that defence spending was manageable.  We entered the 21^st Century with healthy national finances and a palpable sense of optimism.

As we now know, that optimism has proven to be misplaced.  A series of events, starting with 9/11 and the ensuing war in Iraq (2001-03), then the financial crisis (2007-08), the Euro crisis (2011), and more lately Covid-19 and Russia’s invasion of Ukraine, have driven up government borrowing. With rising interest rates, servicing that debt is increasingly expensive.

Meanwhile, demands on the public purse continue to increase – an ageing and ailing population, promises to increase defence spending, and the need to invest in the future all add to the challenge.  Meanwhile we appear to be collectively unwilling to accept higher taxes to pay for it all, or to tolerate any reduction in the services or benefits we receive.

Rachel Reeves is just the latest in a line of Chancellors of different political stripes to be faced with the challenge of paying for public services and promoting economic growth while maintaining fiscal discipline.  In my 35 years or so of awareness or involvement in matters financial, I cannot think of a single Chancellor that has emerged from political office with their reputation burnished rather than tarnished.  Some are just rather more tarnished than others.

Labour’s manifesto pledge not to raise income tax, VAT, or employee National Insurance, has proven to be a millstone around her neck, forcing her to look into the more obscure corners of the tax system to find the money.

Unfortunately, last year’s attempt to get around these self-imposed restrictions appears to have backfired.  The increase in Employer’s National Insurance coupled with lowering the income threshold and raising the minimum wage have caused real problems for businesses and the people they employ.  The result has been business closures and falling employment in certain sectors.

With the 2025 Budget still two months away, speculation has (yet again) been building in the media about what she may do to raise more tax.  The government itself has apparently contributed to this speculation by ‘kite-flying’ – hinting at possible changes to gauge public reaction.

Let’s remember that similar rumours swirled around ahead of the 2024 Budget, and most of them did not come true.

Here are some of the recent headlines:

‘Savers scramble to pull tax-free cash out of pensions amid fears Rachel Reeves could slash limit’ – ThisisMoney.co.uk 5^th September 2025

‘Reeves considering £2bn NI raid that would devastate GPs’ – The Telegraph 6^th September 2025

‘Sources tell The Independent the chancellor favours raising capital gains tax and introducing a gambling levy’ – The Independent 3^rd September 2025

‘Landlord tax raid: What Rachel Reeves’ National Insurance plan could mean for buy-to-lets’ – ThisisMoney.co.uk 29^th August 2025

I am not going to add to the speculation, merely repeat some of it.  However, my key message is that making hasty decisions on the back of such speculation could do more harm than good. Also, media commentators (including me!) bear no responsibility for any adverse consequences of taking their ‘advice’ (see the disclaimer at the end).

The changes guessed at include:

General taxation

Increasing tax on dividends and capital gains to align with tax on earned income

Pensions

Re-instatement of the Lifetime Allowance

Removal of the tax-free lump sum, or a reduced limit of perhaps £100,000.

Capping the tax relief on pension contributions

Doing away with Salary Sacrifice employer pension schemes, which save National Insurance for companies and employees alike

ISAs

Cutting the allowance for Cash ISA contributions to £4,000 a year, from the current £20,000 a year.

Inheritance Tax

Scrapping or extending the 7-year rule, or capping the amount someone can give in their lifetime

Scrapping ‘taper relief’ – a much-misunderstood relief that reduces the tax due on a gift where the donor dies between three and seven years of the gift

Charging tax on the recipient of a gift rather than the estate of the donor

Property

National Insurance to be charged on rental income

Capital Gains Tax to be imposed on main residences above a given value (currently exempt)

Possible Wealth Tax

Etc etc

I have no special insight that enables me to know how likely any of it is.  However, making significant financial decisions based on guessing about the future is fraught with pitfalls. Just to focus on one of the above changes – which people appear to be acting on already – the potential removal or reduction in the tax-free cash that may be drawn from pensions.

Pension funds have significant tax benefits.  Money held within them is free of income and capital gains tax and there’s been no hint that will change.  Unless you have a specific use for the money (debt repayment, giving it to your children etc), all you are doing in taking the lump sum is moving it from a tax-free environment to a taxable one, and if the rules do not change, you will not be able to undo the withdrawal.

Pensions are also still, at least until April 2027, free of Inheritance Tax.

Suppose you take the wait and see approach – what if tax-free cash does turn out to be scrapped and you haven’t rushed to take your cash before Budget Day?  Here’s where I will stick my neck out, with my guess about what might happen.

People coming up to retirement now have been saving into pensions for perhaps 30-40 years, with the expectation that they will be entitled to take 25% of it tax-free.  I believe it would be grossly unfair (and shortsighted) to remove that entitlement wholesale, not least because people may have planned to use that money for an important purpose such as paying off their mortgage.  It probably wouldn’t raise much money very quickly either, because people would simply not bother drawing large amounts from their pensions except if absolutely necessary.  They may in fact put off spending they had intended with that money – not an outcome a growth-minded government would wish for.

If the government is determined to do away with pension tax-free cash, they should enable pension-holders to preserve the entitlement they already have.  That could take the form of ‘transitional protection’, which could be 25% of the current value of their pension fund, with a maximum of £268,275 (the current standard maximum introduced by the last government).  It would therefore only be future pension savings and investment growth that would not accrue the tax-free entitlement. As if pensions were not already complicated enough!

To conclude, we do not know what the Budget will contain, nor can we know the exact consequences of any particular change.

We think it is best to wait and see what appears in the Budget, and then take your time to decide how to respond.  Only with the benefit of hindsight will we know whether this turns out to have been the best approach. The disclaimer below is more relevant than ever.

This article is intended for information only, and does not constitute advice.  All information is based on our understanding of current law and practice, which may be subject to change in the future.

Wise Investments Limited is authorised and regulated by the Financial Conduct Authority, FCA no. 230553.