Last Updated on August 13, 2025
UK tax rises this autumn now seem almost certain, according to leading economic analysts. Facing a ballooning deficit and near-record debt, Chancellor Rachel Reeves must decide which promises to keep and which to break. The National Institute of Economic and Social Research (NIESR) warns that avoiding tax increases would jeopardize fiscal stability for years to come.
Why UK Tax Rises Are Back on the Table
In June 2025, the UK’s budget deficit hit £44.5 billion, up £6.5 billion from the same month last year. Public debt climbed to 96.3% of GDP, placing Britain close to the 100% threshold economists view as a red flag. According to NIESR, the only realistic way to plug the gap is through targeted UK tax rises or deep spending cuts — neither politically attractive.
NIESR’s Fiscal Warning
NIESR forecasts a £41.2 billion deficit by 2029–30 if Reeves sticks to her “fiscal rules” without introducing UK tax rises. Their analysis shows she faces a “trilemma”:
- Stick to fiscal discipline
- Maintain public spending plans
- Honour the pledge not to raise taxes for working people
Breaking at least one of these is unavoidable.
Likely Tax Hike Targets
One measure gaining momentum is an increase in gambling taxes, championed by former PM Gordon Brown. Other possible UK tax rises include modest adjustments to income tax thresholds or VAT, though both would breach Labour’s campaign promises. Reeves is expected to announce her decisions in the November 2025 budget.
Risks of Avoiding Tax Increases
Failing to introduce UK tax rises could mean cutting social security or scaling back infrastructure spending. Both options risk damaging public trust and slowing economic growth. Meanwhile, the Bank of England warns inflation could hit 4% if food prices and labor taxes rise in tandem, complicating interest rate policy. On the other hand cutting social security or at least not rising it may stimulate people to find jobs and help grow the economy. The important thing here is to have a balance between the two so there are no shocks in either direction.
What UK Tax Rises Mean for Portfolios
For both domestic and international investors, UK tax rises could shift market dynamics in several key ways:
- Equity Markets – Higher corporate taxes or changes to dividend taxation could pressure UK-listed companies’ profitability, particularly in consumer-facing and gambling sectors. Investors may see short-term volatility as markets reprice earnings expectations.
- Fixed Income – While UK gilts may benefit from a perception of improved fiscal discipline, higher taxes could slow economic growth, potentially influencing long-term yields. A credible fiscal plan, however, might reduce risk premiums on UK government debt.
- Currency Impact – The pound may initially strengthen if UK tax rises signal fiscal responsibility, but prolonged economic slowdown could offset these gains.
- Sector Rotation – Investors may favour defensive sectors like utilities, healthcare, and infrastructure over cyclical stocks more vulnerable to consumer spending cuts.
- Foreign Investment – International investors with UK exposure should monitor changes to capital gains or withholding taxes, as shifts in policy could impact net returns.
For portfolio strategy, the key takeaway is flexibility. Diversifying across asset classes and geographies can help cushion any turbulence caused by UK tax rises and related fiscal changes.
Final thoughts
Autumn 2025 is shaping up to be a defining moment for UK economic policy. NIESR’s message is clear: without UK tax rises, Britain’s fiscal credibility will erode further. For Reeves, the choice is less about whether to raise taxes — and more about how to do it without breaking public trust. Our opinion is that raising taxes is never a good sign for an economy. Governments tend to not spend public money in the most efficient way and transferring more from the business and ordinary people to the public budget means less money will be left for investments, growing capacity and free capital for the companies that earn it. This might slow down growth in the long term and is a red sign for investors.