Wed, 26 Nov 2025

Wed, 26 Nov 2025 Faisal Islam: The real reason Reeves is making you pay more tax

This is about buying breathing space, politically and economically. The two factors are now inseparable.
The government's financial situation is more stable than initially suggested, according to the Office for Budget Responsibility (OBR). Despite projections of slower economic growth due to reduced productivity, the OBR forecasts show that the economy will start from a stronger base thanks to recent upgrades. Additionally, higher wages resulting from high inflation have increased tax revenues. The OBR has also predicted that Artificial Intelligence could boost productivity by a significant amount by the end of the year. As a result, Chancellor Rachel Reeves could have met her self-imposed borrowing rules without freezing income tax thresholds. However, she chose to freeze thresholds for three more years, pushing most people into higher tax brackets and nearly a quarter into the higher rate tax bracket. This Budget can be seen as having two parts: borrowing to spend on immediate priorities, followed by taxing hard to reduce borrowing in the long term. This strategy aims to provide breathing space for both politics and economics. By borrowing to spend, Reeves has secured her government's position, while subsequent taxation will give her room to maneuver. The Labour left is supporting this Budget due to its focus on alleviating poverty, lowering energy bills, and freezing rail fares and prescriptions. The markets have responded positively, with interest rates on government bonds decreasing. However, this comes at a cost: taxes are set to reach new records in 2028. To mitigate this, the government hopes that growth will exceed predictions, allowing them to avoid extended threshold freezes and potentially even reduce interest rates further.
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