Earlier this morning, in what is a highly unusual move, Chancellor Rachel Reeves made a Downing Street speech labelled a ‘Scene Setter’ by the Treasury, in which she laid out some of the challenges she faces in preparing the budget, which will be announced on 26th November.
It’s the first such move for any modern Chancellor, as the weeks running up to the budget will typically see Chancellors lying low. Her message today was as clear as it was sobering, even if there were no surprises: that Britain’s finances are in a far more precarious position than many realise, and difficult decisions lie ahead.
In her speech, delivered just after 8am this morning, Reeves said the Government must make “necessary, not popular” choices to restore stability and rebuild public trust in the nation’s finances. By setting out the challenges she faces so openly, sluggish productivity, persistent inflation, higher global borrowing costs etc. Reeves appeared determined to prepare both markets and the public for what could be a tough fiscal package that she will be delivering later this month.
Her decision to speak now, as markets opened, underscores the Chancellor’s intent to steady investor confidence and shape expectations well in advance of Budget day. Her tone was measured but firm, signalling that the days of short-term fixes and easy political promises are over.
While Reeves stopped short of outlining specific tax measures today, her emphasis that “everyone must do their bit” has fuelled speculation that income tax rises could be on the table on the 26th, potentially making her the first Chancellor in half a century to take that step, and breaking Labour’s manifesto pledge not to raise the main rates of income tax, VAT, or National Insurance.
This morning’s remarks set the stage for a defining moment in Reeves’s tenure at the Treasury. With the fiscal gap estimated at £20–30 billion, she is seeking to convince markets of her fiscal discipline while persuading the public that fairness and prudence can go hand in hand. Whether that balance holds will become clear later this month.
Below, leading experts share their reactions to the Chancellor’s early-morning speech and the challenges she faces ahead as follows:
Sharing her analysis on what today’s speech might mean for the budget in a few weeks time, Lindsay James, investment strategist at Quilter said: “In recent weeks the clamour surrounding the upcoming Budget has grown to a dull roar, culminating in today’s speech by Rachel Reeves that effectively confirmed that significant tax rises are needed. Economists and industry commentators have by and large come to the same conclusion which is that the estimated £20-40bn hole in the public finances is too large to be closed with ‘tinkering’ and the Chancellor is likely to have to raise at least one of the three main taxes of income tax, NI and VAT, which account for around 60% of the UK tax base.
“On one hand she has been somewhat unlucky during her time at No.11. The extremely slender £10bn of fiscal headroom was a gamble that didn’t pay off. Each year this headroom typically swings in either direction by around £20bn based on a raft of factors. These include economic growth forecasts, gilt yields, inflation, productivity and external shocks, with policy decisions only one element of the figure. Global economic growth forecasts have softened; UK businesses have seen further barriers to trade erected by the White House whilst productivity continues to languish following decades of cuts to investment.
“However, some of these factors have already been influenced by this government. Higher national insurance contributions by employers, higher minimum wages, a pick-up in public-sector pay awards and weak efforts to reform welfare continue to disincentivise employment and reduce labour supply in the process. Together these actions have stoked inflation and thus keep interest rates, debt servicing costs and the cost of living, higher as a result. Inflation within the labour-intensive service economy remains stuck at 4.7%, well above pre-covid levels.
“Thankfully, the Chancellor seems to be listening to advice to increase the fiscal headroom with her speech suggesting she will look to build ‘more resilient public finances’; a sensible goal but nevertheless one that will add to the short-term pain at the Budget. However, this speech contained no real acknowledgement that deeper spending cuts may be needed.
“Reeves has been helped in recent weeks by the downward trend in government bond yields, partly as a result of global moves but also due to the inflation picture easing marginally. Markets appear not to have overreacted to today’s speech, but they will now be watching closely to see if the pre-Budget rhetoric is followed through with action that actually bolsters the public finances at the same time as promoting economic growth. Tax rises historically dampen economic growth, so it is a balancing act that is difficult to achieve and fraught with risk, and may not actually work in extracting the public finances out of this predicament.”
Matthew Amis, Investment Director – Rates Management, at Aberdeen Investments said: “Chancellor Reeves’s speech this morning provided the gilt market with all the right comforting words as we head towards the Autumn Budget. The Chancellor confirmed the fiscal rules are ironclad, that she intends to increase the fiscal headroom and the importance of inflation falling. She mentioned re-visiting welfare reform, and while admittedly there were more hints to tax rises than spending cuts, there were some hints to spending cuts nonetheless. Gilts yields fell throughout the speech, but pared gains as it became clear that even though tax hikes seem inevitable, they weren’t going to be announced today.
“The question now is: can she deliver? UK chancellors have talked tough in the past, only to then fail on delivery or U-turn at the last moment. If Chancellor Reeves is as bold as she was this morning at the Autumn Budget, then we believe gilts yields can continue to fall into year-end, outperforming peers.”
Rob Morgan, Chief Investment Analyst at Charles Stanley said: “Today’s speech from Chancellor Rachel Reeves confirms what we previously suspected: that significant tax rises lie ahead in this year’s Budget and that areas previously ringfenced by manifesto promises are no longer out of scope.
“While bond markets may have been reassured by Reeves’ further commitment to her fiscal rules, as well as her acknowledgement of the importance of fostering growth, taxpayers will be left feeling distinctly uneasy.
“Only the major taxes have the revenue-raising potential to fill a large portion of the hole in the government’s finances. With unwanted inflationary consequences of raising VAT and corporation tax a likely no-go area with many businesses already struggling, it leaves income tax and national insurance firmly in the cross hairs for a broad increase.
“In addition, we can expect a series of other measures targeting wealthier individuals. Yet the Chancellor will need to be exceptionally careful any moves do not backfire once their impact on investment and growth are considered.”
Michael Browne, Global Investment Strategist, Franklin Templeton Institute provides his thoughts on Rachel Reeves pre-Budget speech saying: “In a significant pre-Budget speech, Chancellor Rachel Reeves outlined her priorities, highlighting inflation, interest costs, national debt, and the NHS as key concerns. Notably, she acknowledged that the inflation rate, which recently dipped to 1.7% in September, remains a problem.
“The UK’s high national debt, standing at 94% of GDP after separating day-to-day and investment budgets, is a pressing issue. Reeves emphasised that both inflation and debt contribute to increased interest costs, which in turn constrain public expenditure
“Reeves’ speech suggests an austere budget with tax increases focused on non-inflationary measures, specifically income tax. Key considerations include:
- A 1p increase in the basic income tax rate (unchanged for 50 years) could yield £8.2 billion.
- A 1p increase in the top income tax rate would raise £0.2 billion.
- A 5p rate rise could contribute £1 billion, forming part of a £9 billion package.
- Not indexing income tax bands could raise an additional £7-10 billion, depending on inflation.
“The budget is expected to result in downgraded growth and inflation forecasts for the next year. While the Gilts market is likely to rally, Sterling may depreciate due to anticipated rate cuts from the Bank of England. Historically, falling interest rates benefit the FTSE 250, and a weak Sterling could boost the FTSE 100, given its significant overseas sales.
“The situation mirrors consumers’ dilemmas about booking future holidays and purchasing foreign currency. The question remains whether companies are reducing prices due to weak employment prospects or tax-induced consumer pinch.
“The Chancellor is navigating a challenging economic landscape with limited flexibility, aiming for short-term economic restraint in anticipation of a recovery in 2027.
“As Reeves herself says ‘honesty is more important than manifesto promises’.”
Musa Sabo, Director at Andersen LLP, comments: “Rachel Reeves’ speech this morning has done nothing to ease the fears surrounding the upcoming Budget, and such a speech would only be required ahead of breaking their manifesto pledge not to raise taxes on working people.
“The message from the Chancellor is now clear – brace yourselves for an increase to income tax, national insurance or VAT at the Budget.
Paul Barham, Head of International Private Client Tax at Forvis Mazars comments: “Despite all the rumours, the government has limited options in the Autumn Budget. Unable to cut spending, some tax increases are almost certain.
“Tax by stealth is more likely than any large-scale overhaul, due to promises made in the manifesto and repeated at the Labour party conference not to increase VAT, Income Tax or National Insurance. We can expect to see a continued freeze on income tax thresholds, a subtle but effective way to increase revenue as wage inflation pushes more people into higher tax brackets. The government may also close tax advantage schemes that have so far avoided attention, such as non-AIM Business Relief investment schemes.
“Loophole closing will also be in the government’s sights with potential changes to Capital Gains Tax (CGT) exit charge on individual assets as more taxpayers consider moving overseas to mitigate this burden. Designed to prevent people from avoiding tax on asset gains by moving abroad, it could be introduced on unrealised gains when an individual or company ceases to be a UK resident. Such is the case already on trusts and business assets. Given the exodus in advance of the abolition of the non-dom regime, not having introduced it at the same time will seem like a missed opportunity but it will still have the effect of ensuring gains created in the UK are taxed here.
“Finallly, look out for tighter rules around inheritance tax (IHT). This could include extending the “seven-year clock” for gifts to become IHT-exempt or capping the total amount of tax-free gifts over a lifetime. While the exact details are still unknown, the overall direction is clear: tax rises are coming and will impact financial planning.”
Sharing her reaction to the statement, Daniela Hathorn, Senior Market Analyst at Capital.com said: “UK Chancellor Rachel Reeves delivered a sober pre-Budget speech this morning, signalling that she is prepared to make “necessary, not popular” decisions to safeguard the British economy. She warned that since her last Budget, the world has thrown “even more challenges our way,” citing sluggish productivity, persistent inflation and elevated global borrowing costs.
“Reeves did not explicitly restate Labour’s campaign pledge not to raise income tax, VAT, or National Insurance for working people, which could indicate an openness to revisiting those promises if the fiscal outlook worsens. While she stopped short of announcing specific tax measures, Reeves made it clear that everyone “must do their bit” to protect public services and restore stability, laying the groundwork for potential tax rises in the months ahead.
“She acknowledged the existence of a fiscal gap estimated at £20–30 billion, driven by weak productivity growth, sticky inflation, and higher global interest rates. Overall, her comments framed a pragmatic approach to rebuilding fiscal resilience while managing public expectations ahead of the next Budget.
“The market reaction has been limited, with gilt yields dropping marginally as investors welcome the emphasis on prudence. However, the FTSE 100 has extended the losses into the European morning as Reeves’ comments highlight a difficult fiscal situation in the UK, which could have a negative effect consumers and business in tax increases are announced on November 26th.”
Steve Clayton, head of equity funds, Hargreaves Lansdown points to the lack of surprises in the speech saying: “Chancellor Rachel Reeves set out the stage ahead of the Budget in her speech this morning. She surprised no-one by refusing to rule out tax rises and tried to get markets onside, promising to go faster and further to deliver growth. She pointed out that £1 in every £10 of taxpayers’ money is now spent on servicing the interest on the debts that successive governments have accrued. That sums up her dilemma, she wants growth to boost revenues and ease the debt constraints, but those constraints are very real and give her little room for manoeuvre. Markets know this, which is why there has been very little reaction to the speech, given it revealed little of substance. Equities were under pressure already this morning and the FTSE remains 70 points or 0.7% lower. Gilt yields have improved by about 2 basis points, in common with European bond yields, whilst sterling has barely budged.”
Maike Currie, VP of Personal Finance at PensionBee, has also shared her comments: “By giving us the why well in advance of the what, the Chancellor is paving the way for the difficult choices needed to balance the country’s books – choices that are likely to involve inevitable and painful tax rises.
“If she does opt to raise income tax, rumoured to be up to 2%, she will be the first Chancellor to do so in half a century, breaking Labour’s manifesto commitment not to increase income tax. Such a move will hit everyone – the working population, pensioners and landlords.
“Today’s early morning curveball from the Chancellor, just over 20 days before she opens her red briefcase on November 26, reinforces why this Autumn Budget is both an economic necessity and a political gamble. She will be framing her announcements as the ‘right choices for the country’, but all eyes will be on how the pound, markets and crucially, long-dated UK government bond (gilt) yields react.”
Rachael Griffin, tax and financial planning expert at Quilter has given us her views on what the Chancellor said today, as well as where she sees the key challenges in the weeks ahead saying: “Rachel Reeves’s pre-Budget speech was all about preparing the ground for some painful measures later this month. She knows this Budget will define her credibility, and her message today was clear that Britain’s finances are in a worse state than many realise, and everyone will be expected to play their part in putting them back on track.
“Reeves was at pains to distance herself from the politics of austerity, arguing that deep cuts and short-term fixes are what weakened the country’s economic foundations in the first place. But while her argument against renewed austerity will appeal to many scarred by the last decade, it also lays the groundwork for a different kind of pain, which is higher personal taxes to rebuild public finances. She’s made it clear she is happy to be unpopular if it helps secure public finances.
“Her insistence that ‘easy answers’ are off the table is a warning that there will be few giveaways in this Budget. The Chancellor is trying to convince both markets and the public that fiscal discipline can coexist with fairness, but for households already facing high borrowing costs and squeezed budgets, the idea of contributing more will still be a tough sell.
“This was a speech designed to project authority and honesty, not to win popularity. The real challenge for Reeves will come when she has to translate that rhetoric into decisions that feel credible to investors but also tolerable for working families.”
