My Predictions for the Budget 2025 – Labour Budget November 2025

Posted by Steve Milford | Nov 19, 2025 | 

With the Labour Budget for November 2025 now a week away, anticipation is building as the government prepares to present its second fiscal plan since taking office. The run-up has been dominated by a string of high-profile U-turns on tax, spending, and long-promised reforms—shifts that have left many wondering what direction the Chancellor will ultimately take.

Ministers argue the reversals reflect changing economic realities, but this Budget is widely seen as a pivotal chance to steady the narrative and set out a clearer long-term vision. In this post, I’ll explore the signals so far and share my predictions for what the Budget 2025 might mean for households, businesses and the broader economy.

Income Tax: What to Expect in the Labour Budget November 2025

Early signals from the Treasury suggested Rachel Reeves was exploring a 2% rise in the basic rate of income tax, paired with a 2% cut in National Insurance to soften the impact for basic-rate earners. However, strong pushback from Labour MPs has made this option far less likely, with concerns centred on voter trust, cost-of-living pressures and the political optics of raising taxes so early in the parliamentary term.

Frozen Thresholds Until 2030

The more credible direction now is to extend the current freeze on income tax thresholds until April 2030. This would continue the existing fiscal drag, drawing more workers into higher tax brackets as wages rise. For the government, it’s a significant revenue generator that avoids the criticism of explicit rate hikes.

Possibility of Threshold Reductions

There remains a slight but notable chance that the Budget could go further. One scenario under discussion is reducing the higher-rate threshold, potentially from £50,270 to £45,270. This would subtly bring more middle-income earners into the 40% bracket without making dramatic changes to headline tax rates.

National Insurance: Minimal Change Expected

With the idea of an income tax increase cooling, the previously mooted 2% cut to National Insurance now looks less likely. Labour risks criticism for reversing NI cuts made by the previous government, and the Treasury needs every lever available to raise funds.

A more probable outcome is no significant NI movement, with the government holding rates steady while emphasising long-term tax reform goals.

Capital Gains Tax: A Target for Reform?

CGT frequently appears as a potential revenue raiser, and Labour has left the door open to “aligning” CGT with income tax rates. A complete alignment seems politically risky, but we may see:

  • small CGT rate increases for higher-rate taxpayers,

  • reduced allowances, including the annual exempt amount,

  • Potential reform of Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).

Dividend Allowances: To Be Removed and Dividend Taxes Set to Rise

One of the more significant revenue-raising measures expected in the Labour Budget November 2025 is the potential overhaul of dividend taxation. The current £500 dividend allowance is widely anticipated to be removed entirely, effectively bringing all dividend income into the tax net.

Alongside this, dividend tax rates for basic-rate, higher-rate and additional-rate taxpayers may rise, with increases of 1–2 percentage points being the most plausible scenario.

Inheritance Tax: £325,000 Threshold to Stay Frozen, but the Residential Nil-Rate Band May Be Abolished.

Inheritance Tax is set to remain a politically sensitive area in the Labour Budget November 2025. The £325,000 Nil-Rate Band is expected to stay frozen, continuing the long-term fiscal drag that has gradually pulled more estates into the IHT system.

However, a more substantial change may be on the horizon: the potential abolition of the Residential Nil-Rate Band (RNRB), currently worth up to £175,000 when passing a primary residence to direct descendants.

Removing the RNRB would simplify the IHT system and raise notable revenue, though it would also increase the tax burden on families inheriting modestly valued homes in high-cost areas.

Pensions: Salary Sacrifice Likely to Be Tightened, Tax-Free Cash Protected, and Pension Tax Relief Under Review

The pensions system offers the Treasury a wide range of levers to raise revenue, but with political sensitivity running high, sweeping reform is unlikely in the Labour Budget November 2025. Instead, the government may opt for targeted, technically focused adjustments, starting with salary sacrifice.

Salary Sacrifice: A Simple, Low-Risk Revenue Raiser

Salary sacrifice arrangements allow employees and employers to reduce National Insurance contributions by exchanging part of an employee’s salary for pension contributions. Because these schemes are widely used and relatively easy to adjust, they are a prime candidate for change. Restricting National Insurance benefits, capping the maximum tax relief amount, or applying tighter qualifying criteria would all increase tax receipts without fundamentally altering pension tax relief.

Tax-Free Cash: Unlikely to Change

The popular 25% tax-free lump sum — often known as tax-free cash — is expected to remain untouched. Any alteration to this benefit would be politically explosive and almost certainly dominate the Budget narrative. With Labour already managing several policy reversals, making changes here would be seen as too risky, especially for older voters.

Pension Tax Relief: Subtle Adjustments Possible

While the core structure of pension tax relief is unlikely to be rewritten, the government may explore modest refinements, particularly for higher earners. Options could include limiting the relief available at the higher and additional rates, introducing a more streamlined flat-rate system, or tightening annual allowance rules for the highest earners. These tweaks would allow Labour to demonstrate fiscal responsibility while avoiding the backlash associated with more drastic pension reforms.

Conclusion: None of This Is Guaranteed — But Without Income Tax Rises, These Measures Look Increasingly Likely

Ultimately, none of the measures outlined above are guaranteed to appear in the Labour Budget November 2025. Budgets are fluid until the very last moment, and political pressure, economic data, and internal party dynamics can all reshape decisions behind closed doors.

However, one thing is becoming increasingly clear: if the government wants to avoid a headline rise in income tax, it must look elsewhere for substantial and politically manageable sources of revenue. That makes the options discussed above — frozen thresholds, dividend tax changes, tightening salary sacrifice, CGT and IHT adjustments, and potential reforms across pensions and business taxation — not only plausible but highly likely contenders.