• The Autumn Budget avoided the most feared tax hikes, opting instead for cautious measures that modestly reassured markets but left the UK’s deep fiscal challenges; high borrowing, rising debt-servicing costs, exorbitant state spending and stagnant growth, unaddressed.
• Key policy changes centred on stealth taxation and targeted levies, including extended income-tax threshold freezes, a new “mansion tax”, reduced pension tax advantages and higher duties on various consumer goods, alongside increased welfare spending and a higher minimum wage.
• The Budget failed to offer a credible pro-growth strategy, with downgraded medium-term forecasts, rising borrowing, post-war record high taxes, persistent productivity stagnation and no meaningful reform to public spending or economic incentives.

After months of speculation, the covers are finally off one of the most nervously anticipated Autumn Budgets in memory. The UK finds itself in a self-imposed bind; borrowing is now around twice pre-pandemic levels, public debt is perilously close to 95 % of GDP¹, and debt-servicing costs have more than doubled since 2019, swallowing £1 in every £12 spent by the state.² With a growing laundry list of things the government has committed to spend on, there were concerns around the solvency of the UK state, and the seriousness with which this situation was being addressed by the government.

Against that stark backdrop, and in light of the government failing to pass even very small spending cuts earlier in the year, many expected sweeping measures. Instead, the Budget adopted a more cautious tone, and early reaction has been muted, but there is a perceptible sense of relief owing to the worst case of a major tax rise being averted. As such, gilt yields have fallen and the Pound has strengthened³, signalling a small but perceptible nod of approval from investors, who are relieved to see the government take some small steps to patch the yawning chasm in UK public finances.

Changes made to taxation, spending and regulation

The Chancellor delivered a broad sweep of revenue-raising measures, many of them extensions of policies already in place but now stretched deeper into the decade. Foremost among them is the continued freeze of income tax and National Insurance thresholds until 2031, a move that will quietly pull millions more workers into higher tax bands as wages rise. Property owners face a significant shift too. Council tax will now be supplemented by a new “Mansion tax” levied annually on homes worth over £2 million. The charge begins at £2,500 a year and climbs to £7,500 for properties above £5 million.

Pension savers are also in the line of fire. From 2029, the generous tax treatment of salary-sacrifice pension contributions will be capped at £2,000, with anything above that threshold subject to National Insurance. This alone is expected to raise nearly £5 billion in additional contributions⁴. Alongside this, a cluster of smaller measures are being taken, including increases to dividend tax rates, expanded duties on sugar, tobacco, alcohol and gambling, and the introduction of road tax for electric vehicles.

These tax increases sum to £26 billion once they are enacted towards the end of the Parliament, alongside the £32 billion of tax rises brought in following last year’s Budget⁵.

Outside taxation, spending commitments also shifted. Welfare saw a notable expansion with the abolition of the two-child cap on child benefit, a change that will cost around £3 billion by the end of the decade^6. The National Living Wage is rising to £10.85, and the government recommitted to the pensions triple lock, announcing a 4.8% increase in payments from April 2025. Combined, these policies add substantial weight to the spending side while the Chancellor simultaneously boosted her fiscal headroom to £22 billion, a buffer intended to provide some margin for error against the government’s own fiscal rules.

The Budget solved none of the UK’s outstanding issues

Despite some modestly improved short-term projections, the Budget does little to shift the UK’s underlying economic trajectory. The OBR nudged its 2025 growth forecast up from 1% to 1.5%, but growth expectations for 2026 and 2027 have been cut to 1.4% and 1.5% respectively, with similar downgrades extending through to 2029⁷. The UK is stuck in a low-productivity, low-growth rut, and nothing in this Budget decisively alters that course.

Compounding the problem is the government’s own fiscal stance. One year on from her first Budget, Rachel Reeves is now choosing to spend and borrow more than she previously committed to. Borrowing will in fact be higher in each of the next three years, only dipping after 2029–30 once a suite of heavily back-loaded tax rises finally comes into force⁸. Higher borrowing combined with lower growth and ever-higher taxes is a difficult mix to reconcile with the government’s self-declared “pro-growth” agenda.

The tax burden itself will deepen these structural weaknesses. High and rising taxes suppress economic activity by squeezing household demand and discouraging investment, intensifying the UK’s competitiveness problem.

At the same time, the rise in the minimum wage piles additional pressure on sectors already in distress, particularly hospitality. With youth unemployment stubbornly high, further cost increases for labour-intensive industries risk shutting out the very young workers the policy is meant to help. Meanwhile, the government shows no serious appetite for controlling spending. After narrowly avoiding a backbench revolt only months ago, it continues to preside over an expanding welfare state: 5,000 people per day are reportedly joining welfare rolls⁹, and one in five adults is now economically inactive¹⁰. In addition, the state pension will rise by almost 5% next year¹¹. The burden on taxpayers grows heavier, yet the state shows little inclination to trim back or reform.

Taken together, these choices betray a lack of strategic direction. There is no clear attempt to reconcile high public spending with a genuine pro-growth framework, nor to recognise that taxation as a tool can either incentivise economic activity or smother it, depending on the level at which it is implemented. With no movement on the fundamental drivers of weak growth; productivity, competitiveness, incentives to invest, and the size of the state, this Budget ultimately feels like another exercise in delay. It nudges the system along but leaves the UK’s most pressing problems squarely unsolved, kicking the can yet again down an increasingly short road.

Source: Bloomberg

Bowmore portfolios

Given the understandable frustration surrounding the UK’s economic direction, our substantial allocation to UK equities may seem counterintuitive. But it is important to distinguish sharply between the health of the UK corporate sector and the condition of the UK government. Britain’s largest companies remain exceptionally robust. The FTSE 100 index, whose constituents derive more than 80% of their revenues from overseas¹², is far more global than domestic in character. As such, despite the UK’s dour economic backdrop, the index has risen 16.8% over the past year^13, supported by resilient earnings, strong dividend flows and solid operational performance. The vast majority of our UK equity exposure comes from this internationally diversified market.

Our fixed income positioning reinforces this distinction. The UK corporate bonds we hold are issued by high-quality, well-capitalised companies, and continue to offer stable, attractive returns. The UK sovereign debt, or gilts, in our portfolios also provide reliable income, with yields that remain appealing and a default risk that is effectively negligible. Moreover, the bond market responded constructively to the Budget, with gilt prices rising after the Chancellor’s statement, signalling cautious investor confidence.

Most importantly, our portfolios are designed to be broadly diversified across geographies, asset classes and sectors, ensuring that exposure to risks tied to any single economy, including the UK, remain modest. We continually monitor developments in markets and policy, and we will keep you informed as conditions evolve. Our focus remains steady; maintaining resilient, well-balanced portfolios that can navigate uncertainty whilst continuing to deliver long-term, sustainable results.

Source: AlphaTerminal, data as at 27/11/2025

 

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.

Sources:

1. Trading Economics
2. Institute for Fiscal Studies
3. Financial Times
4. Office for Budgetary Responsibility
5. Columbia Threadneedle
6. Office for Budgetary Responsibility
7. Office for Budgetary Responsibility
8. Office for Budgetary Responsibility
9. Hansard – UK Parliament
10. Gov.uk
11. This is Money
12. Fidelity
13. Trading Economics