Businesses brace for Budget tax rises

Businesses are braced for another difficult Budget when Chancellor Rachel Reeves stands up in Parliament on 26 November. 

Giving her second Budget speech since taking charge of the public finances, she is broadly expected to announce tax rises to plug a spending gap estimated at between £20 billion and £40 billion. 

Reeves had pledged last year not to raise taxes again following the 2024 Budget, when she raised £40 billion in taxes. But the Chancellor has since suggested that tax rises could be possible amid changing economic and geopolitical pressures.

Challenging economy creates Budget pressures

The economy remains sluggish. GDP growth was weak in August, after dropping by 0.1% in July. Meanwhile, higher spending on public services, benefits, and debt interest pushed government borrowing to £20.2 billion in September, the highest seen for the month in five years. 

Inflation also remains above the Bank of England's 2% target, remaining at 3.8% in the year to September - the third month it has stayed at that rate.

Against this backdrop, business confidence and investment are weak. The British Chambers of Commerce (BCC) Quarterly Economic Survey for Q3 found confidence and investment levels stuck at the rates they were at in 2022. Following the rise in employer National Insurance Contributions (NICs) in April, tax is the biggest concern for businesses, the BCC survey showed, with more than half of businesses (59%) citing tax as a worry. 

Businesses are already under significant pressure. A survey of UK businesses by Atradius found that businesses have used up an average of around three-quarters of emergency reserves to respond to business risks. The research, conducted in September, found that political and policy shifts - including Employer National Insurance Contribution increases announced in the last Budget - were considered among risks by 33% of businesses surveyed.
 

Potential Budget business tax changes

What might the chancellor announce in her 2025 Budget? Nothing is certain, but potential changes include:

An increase in gambling duties: There has been speculation that so-called sin taxes on items like alcohol, tobacco and vaping could increase. Other options include gambling. The Institute for Public Policy Research has calculated that a change to gambling taxes could add £3.2 billion to the public finances. According to news reports, betting shop operators have been drawing up plans to close outlets if a gambling tax is announced. 

A windfall tax on banks: Pressure is mounting for the Budget to include a windfall tax on banks’ profits. The bank surcharge is currently 3% on top of the main corporation tax rate of 25%. The Trade Union Congress (TUC), which is the umbrella group for trade unions in the UK, says reversing a 2023 cut to the bank surcharge from 3% back to 8% would raise £8 billion over four years.

Business rate reforms: The Budget is expected to confirm the specific rates for major structural reforms to business rates in England that have already been legislated. These changes will establish permanently lower multipliers for smaller retail, hospitality, and leisure properties, which will be funded by a higher multiplier on large properties, all coming into effect from April 2026.

Customs duty on low-value consignments: The Government is already reviewing the £135 threshold for low-value goods imported into the UK, which benefit from simplified customs processes and duty-free treatment. There is speculation that this review could be brought forward in the upcoming Budget, given that the US has suspended its own exemption and the EU is considering similar action. According to accountancy and business advisory firm BDO, the threshold could be reduced or the relief abolished.