Chancellor Rachel Reeves’ earlier plans to save billions in welfare costs have largely unravelled, following government U-turns — most notably on the Winter Fuel Allowance. This has significantly reduced the £10bn fiscal buffer originally intended to safeguard the UK’s public finances. With the Autumn Budget approaching, the Chancellor now faces five main options to get things back on track:
1. Wait and See
Reeves could hope that stronger-than-expected economic growth or falling debt interest costs will ease the pressure. However, this is a risky approach, particularly with economic growth forecasts recently cut to just 1% and ongoing uncertainty around global trade and tariffs.
2. Find New Savings
A recently announced Spending Review allocated significant funding increases to the NHS and defence. Asking departments to make further cuts so soon after receiving their budgets may undermine credibility and is unlikely to be politically or practically viable — especially with debate ongoing over the affordability of removing the two-child benefit cap.
3. Change the Fiscal Rules
Reeves has ruled this out, having introduced two firm rules: everyday spending must be covered by tax revenue, and debt must be falling as a share of GDP within five years. Adjusting these rules could spook financial markets and increase borrowing costs — a risk the Chancellor appears unwilling to take.
4. Reduce Financial Reporting Pressure
The IMF has suggested the UK reduce the frequency of OBR (Office for Budget Responsibility) assessments to once a year, arguing it may ease scrutiny and allow more flexibility. While this could help manage political and market expectations, Reeves has so far committed to transparency and OBR oversight.
5. Raise Tax Revenue (Indirectly)
Labour has pledged not to raise Income Tax, VAT, or National Insurance for “working people”, leaving few revenue-raising options. One possibility is extending the freeze on tax thresholds — originally due to end in 2028 — which would quietly bring in nearly £7bn. While not a headline tax rise, it effectively increases the tax burden on those whose incomes rise with inflation.
Implications for Clients
Stealth Tax Rises: Business owners and high-earning individuals should be aware that frozen tax thresholds may result in a higher effective tax burden, even if rates remain unchanged. A review of income projections and PAYE thresholds may help avoid surprises.
Public Spending Realignment: Areas like defence and healthcare may continue to receive funding protection, but other sectors may face tighter departmental budgets. Clients operating in or supplying to public sector contracts should assess risk exposure accordingly.
Policy Volatility: With political and economic pressures mounting, policy changes — particularly around welfare, benefits, and tax administration — could come with little notice. Staying up to date and planning early will be vital.
Spring Budget Downgrades: If financial reporting is scaled back, fewer formal opportunities may exist to influence or respond to fiscal changes — increasing the need for proactive financial planning throughout the year, not just at Budget time.
This summary is for general information only and does not constitute financial or tax advice. Professional advice should be taken based on your specific circumstances.