Chancellor Rachel Reeves has indicated that next month’s Budget will include “targeted action” to address the ongoing cost-of-living pressures faced by UK households.
Speaking in Washington, Reeves said it was the joint responsibility of the Government and the Bank of England to reduce inflation, which continues to run higher than in other major developed economies. Forecasts suggest the UK will have the highest inflation rate in the G7 both this year and next.
Possible Energy Bill Support
One potential intervention under consideration is a reduction of the 5% VAT rate on domestic energy bills, or the removal of certain regulatory levies that currently inflate household costs.
The Government is due to receive updated forecasts from the Office for Budget Responsibility (OBR) on Monday, which will determine how much fiscal headroom exists for such measures.
Balancing Inflation and Borrowing
The Institute for Fiscal Studies (IFS) recently estimated a £22 billion shortfall in public finances, suggesting Reeves may need to announce either spending cuts or new revenue sources to meet her borrowing rules.
Despite speculation over potential tax rises, Reeves reaffirmed her commitment to the Labour manifesto pledge not to increase Income Tax, VAT, or National Insurance. Instead, she hinted that any fiscal tightening would focus on those “with the broadest shoulders.”
Global Pressures and Trade Relations
Reeves also highlighted the impact of geopolitical instability and trade tensions—particularly with China—on the UK economy. She expressed concern over China’s recent restrictions on the export of critical minerals, describing the move as “bad for the global economy” and a potential threat to supply chains.
The Chancellor confirmed the UK is working with G7 partners to develop a critical minerals strategy, reducing reliance on imports from politically sensitive regions.
Pharmaceutical Investment and NHS Pricing
Reeves acknowledged that ongoing negotiations with US trade officials could lead to higher NHS medicine costs, as part of efforts to attract investment and retain pharmaceutical research in the UK.
She noted that some drug manufacturers have already paused or relocated projects due to uncompetitive UK pricing, and signalled that changes to the NHS pricing regime may be necessary to encourage innovation and ensure access to the latest treatments.
Key Takeaways for Businesses
The Chancellor is expected to unveil targeted cost-of-living support, likely centred on energy bills.
No changes are expected to the main personal tax rates, but new fiscal measures may affect higher earners or certain industries.
Businesses should prepare for continued economic uncertainty driven by inflation, global trade shifts, and adjustments to government borrowing rules.
This article is for general information only and does not constitute financial or professional advice. For tailored tax or business planning guidance ahead of the Budget, please contact your accountant or financial adviser.