Chancellor Rachel Reeves is preparing to unveil a highly anticipated Budget on November 26, 2025, promising what she calls "targeted action to deal with cost of living challenges" in the face of mounting economic headwinds. With the UK’s inflation rate forecasted to be the highest among G7 nations this year and next, and government borrowing costs reaching multi-decade highs, Reeves finds herself caught between a rock and a hard place: deliver on Labour’s manifesto pledges while shoring up the country’s shaky fiscal position.
Speaking at the International Monetary Fund (IMF) meetings in Washington, Reeves outlined a strategy that aims to strike a delicate balance between fiscal responsibility and supporting struggling households. According to the BBC, she emphasized the shared responsibility between the government and the Bank of England in reducing inflation, stating, "There's a shared job between the Bank of England and the government to bear down further on some of the causes of inflation."
As the Budget deadline looms, speculation is rife about which levers Reeves will pull. The Institute for Fiscal Studies (IFS) recently calculated a £22 billion gap that must be filled to meet her self-imposed borrowing rules, though some experts suggest the true figure needed to create a comfortable fiscal buffer could be as high as £40 billion. Reeves herself acknowledged, “I would like more headroom, of course I would, but that comes with trade-offs. More headroom requires more tax revenue or less spending on public services like the NHS. We have to get the balance right.”
One of the most immediate concerns for millions of Britons is the cost of energy. The government, according to the BBC and The Times, is considering measures such as cutting the 5% VAT on domestic gas and electricity or reducing some of the regulatory levies currently added to bills. These moves could save households about £86 a year, though they would cost the Treasury approximately £1.75 billion. Reeves confirmed, “I am determined that we can bring inflation back to target,” and said she would look at regulated prices in the Budget, a sign that action to reduce energy bills is firmly on the table.
But as the Chancellor searches for fiscal space, talk of tax rises is becoming unavoidable. Reeves has publicly confirmed that tax increases are on the cards, attributing the UK’s challenging economic situation to a trifecta of Brexit, years of austerity, and the fallout from the Liz Truss mini-budget. The Conservative Party, meanwhile, has criticized her approach, accusing Reeves of “killing growth and crushing jobs,” especially as the unemployment rate hits a four-year high. The debate over who is to blame for Britain’s economic woes is intensifying, with both sides trading barbs as the Budget date approaches.
Where will the new revenue come from? Reeves has ruled out an annual wealth tax on assets such as property, land, or pensions. However, she has signaled that those with the “broadest shoulders” should pay more, suggesting a focus on the wealthy. “We are not going to be introducing a wealth tax. We already have a number of taxes that do target wealthy people and some of those were increased in the budget last year,” she told The Times. She pointed to recent decisions to impose VAT on private school fees, scrap non-dom tax status, and increase taxes on private jets as evidence of her approach.
Ideas under consideration include ending the primary residence capital gains tax exemption for homes valued over £1.5 million, potentially affecting about 120,000 homeowners with average tax bills nearing £200,000. Another option is imposing National Insurance (NI) charges on rental profits, which are currently only subject to income tax. A hypothetical 6% NI levy on profits above £12,570 would see a landlord with £20,000 in profit paying an extra £446, or £594 if the rate were 8%. These measures could raise revenues in the low billions, but are not without controversy. The National Residential Landlords Association has warned, “This would be another financial blow to responsible landlords who are already dealing with a wave of new regulation. Tenants will ultimately pay the price through higher rents and reduced choice.”
Despite the pressure to raise taxes, Reeves has reaffirmed her commitment to Labour’s manifesto pledge not to increase income tax, VAT, or National Insurance rates—at least for now. However, party leader Sir Keir Starmer has stopped short of promising this will continue beyond the upcoming Budget, leaving the door open for future changes as the fiscal outlook evolves.
Reeves is also keen to maintain a competitive environment for businesses, hinting that a new bank tax is not on the agenda. “It’s not all about tax, but I do want to have a competitive environment for all businesses in Britain,” she said, recognizing that bank taxes are already high. At the same time, she stressed the need to attract global talent, announcing plans to double the number of visas for highly skilled, high-paid individuals to “come here and build teams in the UK.”
External factors are adding to the complexity. Reeves expressed deep concern about recent Chinese export controls on critical minerals, which are vital for advanced technology manufacturing. The move has heightened fears of a US-China trade war, especially after former US President Donald Trump threatened additional tariffs in response. Reeves told the BBC, “I believe there are areas where we must challenge China, but there are also important opportunities to sell into Chinese markets, including financial services and other areas of the economy. We've got to get that balance right.” She confirmed the UK is working with G7 partners on a critical minerals strategy to reduce reliance on China.
Healthcare is another flashpoint. Reeves acknowledged that ongoing negotiations with the US and pharmaceutical companies could lead to higher prices for NHS medicines, as the government seeks to secure greater investment and access to new drugs. “We want to make sure that people getting treatment from the NHS are able to access the best life-saving drugs in the world. And so we are looking at all of that, and… looking to secure more investment into Britain,” she said to the BBC. This comes after some major drug companies paused or scrapped projects in the UK, citing low prices as a deterrent.
As the Office for Budget Responsibility prepares to deliver its next draft on October 20, the scale of the challenge facing Reeves is coming into sharper focus. The IMF's managing director, Kristalina Georgieva, offered some encouragement, praising Reeves for her signals of fiscal responsibility and growth ambitions: “The UK is doing the right thing. They are signalling [to the bond markets]. They have a growth vision and are showing financial responsibility. You signal and the markets are going to be kinder to you.”
With just weeks to go before the Budget, all eyes are on Reeves as she juggles competing demands: the need for fiscal discipline, the promise of no broad tax hikes, the urgency of tackling inflation, and the pressure to protect the most vulnerable. The decisions she makes will shape the economic landscape—and the political debate—for years to come.