Spending Review – are wealth taxes on the horizon?

- Major pledges included £113 billion in capital funding for infrastructure projects. Defence and health saw healthy boosts to their budgets. Overall, the government has committed to £300 billion in future spending. But could the cost of meeting those pledges have ongoing implications for wealth taxes?

- Spending reviews were introduced by Labour in 1998 and typically cover a three-year period. These set out the funding that different government departments will receive over that time.

- The big winners in the 2025 Spending Review included the Department of Health. It received a £29 billion boost. This will lay the groundwork for the NHS 10-year plan – details of which should be published shortly. Energy infrastructure will benefit from substantial capital investment, including in nuclear. Defence spending will increase by £11 billion. Meanwhile Chancellor Rachel Reeves’ reinstatement of the Winter Fuel Allowance has unsurprisingly garnered headlines.

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The economic backdrop

The UK economic outlook is far from bright. UK inflation remains sticky. In other words, it remains higher than expected. There are risks to growth, not least from the potential impact of US tariffs. Gilt yields have risen, pushing up the cost of government borrowing.

Justin Onuekwusi, SJP’s Chief Investment Officer, says: “Despite a strong start to the year, we expect the UK economy will likely slow down through the rest of the year due to weakening business sentiment and the impact of tax increases in increased employer contribution implemented in April.

“We remain concerned about inflation and believe it is likely to remain inflated. Services inflation is still running at over 5% and despite some softening in the labour market, pay growth remains stubbornly high.

“Though the review mainly allocates existing funds, ongoing public spending pressures suggest future borrowing and possible tax rises.”

Looking ahead to the Autumn Budget

The Office for Budget Responsibility forecast in the autumn will need to consider these issues. It will also have to factor in other governmental policy initiatives, such as changes to immigration.

There is also little doubt the Chancellor will face pressure from her party to spend more in the Autumn Budget.

In its election manifesto, Labour ruled out increases to income tax, employee national insurance contributions and VAT. But there are other levers it can pull. It is estimated the government could levy tax rises of around £15 billion without crossing these red lines. But this leaves little room for substantial spending commitments. This is fuelling expectations that tax rises could be on the horizon.

The likely candidates

There are a number of tax-rising measures that have been speculated on. These include extending the freeze in personal tax thresholds beyond April 2028, which could raise around £7 billion per annum.

Further measures to limit tax avoidance could be introduced, while changes to property taxation are possible. This could take the form of scope for an additional band on council tax or an increase to existing higher bands to raise up to £2 billion.

There has also been speculation about reintroducing the lifetime allowance on pensions and looking at salary sacrifice arrangements. However, both would be difficult to implement and cause sector-specific issues, especially for the NHS.

Advice Divisional Director Claire Trott says: “Salary sacrifice arrangements offer valuable National Insurance (NI) savings for both employers and employees, so any changes would be unwelcome, especially in light of the increase to employers’ NI earlier this year.

“Introducing further changes to pension taxation also risks undermining pensions as a long-term savings vehicle. With other changes to the pension system on the horizon, there is a danger that these alterations could cause even more confusion and savers could become more disengaged with pensions – which is especially worrying as individuals have increasing responsibility to plan and save for their retirement.”

An update on ISAs is likely to form part of the Autumn Budget too. The Treasury has been keen to encourage greater investment in UK markets. One suggestion which regularly crops up is of a cap on cash ISAs – the thinking being that people would instead invest more in equities in an ISA.

James Heal, SJP’s Director of Public Policy adds:

“We’ve been engaged in government and industry discussions around potential changes, including a cap on cash ISAs to encourage greater investment, but there are other measures such as simplifying ISAs (i.e. a single wrapper to make it easier to hold cash and or investments within that) which might be a more fruitful means to achieving this.

“We remain strong advocates for the value of investing, particularly once a sufficient emergency cash buffer has been established.”

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