- The UK’s budget is due to be delivered on 26th November with some estimates reaching as far as £45bn in targeted tax rises2
- Manifesto breaking plans of increasing income tax were scrapped today in policy U-turn1
- The UK’s total tax take is now approximately £1tn per year3
We are now less than two weeks away from Chancellor Rachel Reeves long anticipated budget – and there is mounting speculation in the press, and indeed our office, about what may be unveiled. Just this morning, after laying the groundwork for weeks, the manifesto pledge-breaking rise in income tax has been scrapped for fear of angering Labour MPs and voters.
Since the government appears both unable and unwilling to reduce expenditure in any meaningful way, it faces the need to raise a substantial amount in additional taxes to comply with its own fiscal rules. These rules stipulate that revenues and spending must balance by 2029, and that public sector liabilities must stabilise by 2030. This week we will estimate the amount needed to be raised, review rumours around how the Chancellor will go about it and anticipate how this will affect Bowmore portfolios.
How much needs to be raised?
There’s no official number yet – and estimates vary widely in what it’ll take to fix the bottom line. The lowest estimate we’ve seen is £25bn and highest £45bn. What Reeves has made clear though, is that she doesn’t want to have to come back with more tax rises, so with that in mind, we will work on the assumption that she will look to raise c.£39bn. The Office for Budget Responsibility’s (OBR) downgrade in productivity hasn’t helped matters, and c.£24bn will need to be raised to restore the £9.9bn in headroom in the government’s expenditure. A rise in spending of £5bn and an extra £10bn in fiscal headroom leads to this number4.
Such a tax increase would be nearly as big as Reeves’ first budget (tax receipts rose by £41.5bn) and would mark the biggest tax haul at successive major fiscal events since Denis Healey’s budgets in 1974 and 19764. A fine line between increasing tax and stimulating economic growth must be carefully trodden, and additional pressure is applied since growth is stagnating. The UK has been unable to achieve more than 0.8% growth per quarter since the post-pandemic rebound6.
The rumours
True to form, tax change rumours have been leaked to the press ahead of the budget to avoid market shock and gauge public reaction. While this is only an indication of what will be revealed on the 26th, given the amount of coverage in the press, at the time of originally writing this article earlier this week, an increase in income tax – or at least freezing personal allowance – seemed very likely. However, today’s U-turn, just days after submitting the plan to the OBR, shows Labour in a new light; one that prioritises popularity over fiscal prudence and credibility. This leaves further questions around how the gap will be filled, as a 1% rise in income tax would have raised £10bn in tax receipts3. Gilts are responding negatively to the news, with the 2061 Gilt price down about c.3.5% as at 08:30 this morning7.
Capital Economics have compiled a table documenting each of the rumoured changes and estimated the amount that each will raise in tax receipts.
Market reaction
The below infographic notes the possible market outcomes from the Budget. Though we should also add, such a level of fiscal tightening required is expected to weigh on consumer confidence and economic growth, putting downwards pressure on inflation. Since unemployment reached 5% this week 6, a decreasing inflation outlook could make decision making around lowering interest rates more compelling for the Bank of England, and if so – would be supportive to equities and bond prices.
Source: Capital Economics, LSEG 2025
Bowmore portfolios
While the UK budget has important implications for portfolio structuring and sentiment, we don’t anticipate it to have wholesale impact on your investments. This is for two reasons; we have little exposure to domestically-focussed UK small caps, and our Gilt exposure is relatively short duration, meaning they are less prone to excessive volatility. During the Truss-Kwarteng mini-Budget in 2022, it was the yield of the 30-year Gilt that moved most drastically; 1.2% in just three days5.
Our UK equity exposure is instead more broadly allocated towards large caps, of which c.80% of their earnings are from overseas. Names like Barclays, Rolls-Royce and Standard Chartered feature in our top UK equity holdings for the core mandate. One of the actively managed funds we hold within this space is the Artemis UK Select fund, which focuses on identifying businesses with strong growth potential, robust competitive advantages, and sound financial health. The fund has returned 28.9% within the past 12 months.
Source: Alpha Terminal, data as at 13/11//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:
1The Financial Times, 2025
2 The Guardian, 2025
3 L&G, 2025
4 Capital Economics, 2025
5 AJ Bell, LSEG 2025
6 Trading Economics, 2025
7 Alpha Terminal, 2025