Spending Review: Are wealth taxes on the horizon?
Summary:
Major pledges included £113 billion in capital funding for infrastructure projects. Defence and health saw healthy boosts to their budgets. Overall, the government has committed to £300 billion in future spending. But could the cost of meeting those pledges have ongoing implications for wealth taxes?
Spending reviews were introduced by Labour in 1998 and typically cover a three-year period. These set out the funding that different government departments will receive over that time.
The big winners in the 2025 Spending Review included the Department of Health. It received a £29 billion boost. This will lay the groundwork for the NHS 10-year plan – details of which should be published shortly. Energy infrastructure will benefit from substantial capital investment, including in nuclear. Defence spending will increase by £11 billion. Meanwhile Chancellor Rachel Reeves' reinstatement of the Winter Fuel Allowance has unsurprisingly garnered headlines.
Labour's first Spending Review in 18 years was long awaited but had few surprises. But more relevant for many is what this review is likely to mean for the Autumn Budget.
The economic backdrop
The UK economic outlook is far from bright. UK inflation remains sticky. In other words, it remains higher than expected. There are risks to growth, not least from the potential impact of US tariffs. Gilt yields have risen, pushing up the cost of government borrowing.
Justin Onuekwusi, SJP's Chief Investment Officer, says: 'Despite a strong start to the year, we expect the UK economy will likely slow down through the rest of the year due to weakening business sentiment and the impact of tax increases in increased employer contribution implemented in April.
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'We remain concerned about inflation and believe it is likely to remain inflated. Services inflation is still running at over 5% and despite some softening in the labour market, pay growth remains stubbornly high.
'Though the review mainly allocates existing funds, ongoing public spending pressures suggest future borrowing and possible tax rises.'
Looking ahead to the Autumn Budget
The Office for Budget Responsibility forecast in the autumn will need to consider these issues. It will also have to factor in other governmental policy initiatives, such as changes to immigration.
There is also little doubt the Chancellor will face pressure from her party to spend more in the Autumn Budget.
In its election manifesto, Labour ruled out increases to income tax, employee national insurance contributions and VAT. But there are other levers it can pull. It is estimated the government could levy tax rises of around £15 billion without crossing these red lines. But this leaves little room for substantial spending commitments. This is fuelling expectations that tax rises could be on the horizon.
The likely candidates
There are a number of tax-rising measures that have been speculated on. These include extending the freeze in personal tax thresholds beyond April 2028, which could raise around £7 billion per annum.
Further measures to limit tax avoidance could be introduced, while changes to property taxation are possible. This could take the form of scope for an additional band on council tax or an increase to existing higher bands to raise up to £2 billion.
There has also been speculation about reintroducing the lifetime allowance on pensions and looking at salary sacrifice arrangements. However, both would be difficult to implement and cause sector-specific issues, especially for the NHS.
Advice Divisional Director Claire Trott says: 'Salary sacrifice arrangements offer valuable National Insurance (NI) savings for both employers and employees, so any changes would be unwelcome, especially in light of the increase to employers' NI earlier this year.
'Introducing further changes to pension taxation also risks undermining pensions as a long-term savings vehicle. With other changes to the pension system on the horizon, there is a danger that these alterations could cause even more confusion and savers could become more disengaged with pensions – which is especially worrying as individuals have increasing responsibility to plan and save for their retirement.'
An update on ISAs is likely to form part of the Autumn Budget too. The Treasury has been keen to encourage greater investment in UK markets. One suggestion which regularly crops up is of a cap on cash ISAs – the thinking being that people would instead invest more in equities in an ISA.
James Heal, SJP's Director of Public Policy adds: 'We've been engaged in government and industry discussions around potential changes, including a cap on cash ISAs to encourage greater investment, but there are other measures such as simplifying ISAs (i.e. a single wrapper to make it easier to hold cash and or investments within that) which might be a more fruitful means to achieving this.
'We remain strong advocates for the value of investing, particularly once a sufficient emergency cash buffer has been established.'
Ben Stark is a chartered financial planner with over a decade of experience advising businesses and families. He is partnered with St. James's Place Wealth Management.
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'If you go and speak to people who live in these communities, they just feel completely betrayed,' he said. 'I spent a lot of time in Runcorn. A lot of this is driven basically by a political class that's never really thought about the experience of people living in these areas. And Nigel speaks to those people. '[As with] one of the things Trump is trying to do – whatever your views on the approach he is taking – I think we've got to manufacture more things here. We've got to have energy security. We can't be in a crazy situation where we're unable to produce primary steel.' The message of reindustrialisation is viewed as a unifying theme for Reform's policies. In the pivot to the economic left, Farage's road trip has taken him to Runcorn and Newton Aycliffe, County Durham – where Reform triumphed in elections last month – and the steel towns of Scunthorpe and Port Talbot. In Port Talbot, the south Wales town that recently lost its blast furnaces, he demanded their reopening – along with the valleys' coalmines. However, Labour is fighting back. Rachel Reeves placed investment and regional economic 'renewal' at the heart of her spending review last week, namechecking places that would be sprayed with cash. The government's long-awaited industrial strategy, due on Monday, is designed to bolster manufacturing, and there are hopes that it will tackle sky-high energy prices for industry. Such is the threat in Labour's old heartlands that Starmer used a hastily arranged visit to a St Helens glass factory last month to decry Reform for its 'fantasy economics', comparing Farage to Liz Truss. Will Jennings, the professor of political science and public policy at the University of Southampton, said: 'The fact they are focusing their campaigns there are because the sorts of voters drawn to their messages are there. 'The structure of support for Reform, much like for the Brexit party and Ukip before it, very much tends to be in particular areas, described often, sometimes unhelpfully, as 'left-behind towns'. They tend to be older, have former manufacturing industries, tend to be distant from Westminster, and tend to have suffered economic loss.' Reform came second to Labour in 89 constituencies at the 2024 general election, running Starmer's party closest in the 103-year-old south Wales Labour stronghold of Llanelli, a steel town once famous for manufacturing tinplate. Most of the constituencies are in the north and Midlands. It is these seats where the 2029 battle will be most fierce. Analysis by the Guardian shows these target seats have a higher share of manufacturing jobs than the country at large, demonstrating that, despite decades of industrial decline, they remain more dependent than most on steel, car manufacturing and chemicals. Overall they account for a fifth of Britain's industrial base. Including towns such as Redcar, Wigan and Rotherham, the average share of manufacturing employment is 12.3%, compared with 8.8% for the UK as a whole. The seat of Washington and Gateshead South, home to the vast Nissan factory near Sunderland, has the highest share, at 35.3%. Separate research by the Trades Union Congress shows Labour seats with the most manufacturing jobs are more likely to have Reform as the second party (34% of seats), compared with the average across all Labour constituencies (22%). Recent predictions from MRP models show Reform would win at least 180 seats if an election was held tomorrow, including nearly all of the places where it placed second to Labour in 2024. Most of the seats cover towns that have been hit hard economically by manufacturing decline. When Margaret Thatcher came to power in 1979, Britain's industrial base was already dwindling from its peak in the early 20th century, yet still contributed about 30% to GDP. Many areas were also still dominated by industry – including Hartlepool, Burnley and Stoke-on-Trent, where more than half of all jobs were in manufacturing. The deindustrialisation of the 1980s was, however, brutally fast as the UK transitioned to a more services-oriented economy, reliant on imported goods. Today manufacturing accounts for about a tenth of annual output. But Reform is not only targeting nostalgia for a bygone age when Britain made things. When the factories closed, the jobs they offered were either not replaced or were supplanted by lower-paid, insecure work. Whole towns have suffered economically as a result, falling behind the rest of the country despite the promises of successive governments to turn things around. Austerity made matters worse. Last month, research by academics at the University of Staffordshire showed cuts since 1984 have disproportionately affected coalfield and deindustrialised areas, including reductions in welfare and benefit worth £32.6bn between 2010 and 2021. Andy Haldane, the former Bank of England chief economist, said: 'Whichever lens you look at – economic, social, environmental – those places have been lost, and in that sense they have been left behind. And if not overlooked, then underinvested in, systematically, over at least a generation. If not two. 'The longer that has gone on and has turned into generational stasis, or a lack of social mobility, the greater people in those places have willingness to seek redemption elsewhere. Brexit was that, almost a decade ago. And Reform might be it now.' Haldane, the architect of levelling up, and a key figure in the last government's industrial strategy, said Farage had effectively become a 'tribune for the working classes'. The Guardian's analysis shows Reform's target seats would have an average ranking on the English index of multiple deprivation of 92, out of 543 places in total, with 1 being the most deprived. The index brings together a wide range of data sources to build a picture of deprivation, including income, work, education, health and crime rates. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion Average wages are £65 a week lower than the UK average. Unemployment, economic inactivity and the rate of jobless benefit claims are higher. To track the rise of Reform, Labour researchers have been using data from parliamentary petitions as a straw poll to see if the party is growing in their local area. Analysts are poring over data from the 'Call a General Election' online poll, launched within months of the last one, and signed by 3 million people. Signatories have to enter a postcode, enabling support to be plotted geographically. Hotspots included Essex and Lincolnshire – Reform strongholds. 'We're looking at how active they are, where we can assign a high probability that it [a petition] is being driven by Reform or their organised groups via WhatsApp,' said one adviser to a Labour MP. Almost all the Reform target seats backed Brexit, including 15 Labour won from the Tories in 2024. Most had only been Tory since 2019, when many decades-old Labour seats backed Boris Johnson's 'levelling up' and 'get Brexit done' messages. On average, leave voters tend to be more socially conservative and anti-immigration. Many 'red wall' MPs are pushing Starmer to adopt a tougher stance on immigration as a result, including the Blue Labour caucus founded by Maurice Glasman. Reform has pushed hard on the issue, in a high-stakes campaign after last summer's riots across the UK – including in many post-industrial towns. Experts said economic conditions alone did not explain anti-migrant views or justify rioting, but that austerity and stalling living standards fuelled grievances and mistrust of institutions. Luke Telford, a criminal and social policy academic at the University of York and author on Brexit and deindustrialisation, said: 'The key narratives we heard in the months after [the riots] was it is all about the far right and social media. 'Undoubtedly that's an important contributor to the outbursts of inarticulate rage we saw. But that rage doesn't occur in a vacuum, it is bound to certain social, cultural and economic conditions that combined. 'It's certain that the areas among the most deprived, were among those with high levels of rioting. It's impossible to ignore that kind of correlation.' However, fetishising industrial jobs and prioritising the restoration of British manufacturing might not be the best route to an economic renaissance. Not least because England's regions are more economically and culturally diverse places than some in Westminster give them credit for. Many economists say the idea is riddled with misunderstanding about modern Britain, where its strengths mainly lie in high-value services, rather than on low-paid production that is at risk of being automated away. Most Britons think manufacturing is important for the economy. Most parents do not want their children to pursue a career in the sector. 'I don't think you have to replace manufacturing job with manufacturing job in a Trump-like fashion to resist the rise of populism,' said Haldane. 'But you do need to replace them with something that is at least as good, in terms of quality of work, pay, security and a degree of pride around it. And you do need to invest in the supporting infrastructure. Whether that's transport, housing, or social infrastructure – like youth clubs and parks.' Reindustrialisation runs like a seam of coal through the rhetoric of rightwing populists worldwide – seen most prominently in Trump's Make America Great Again campaign to 'bring back' factory jobs to rust belt states. Much of the intellectual driving force behind reviving industry emanates from the US. The economist Oren Cass and his American Compass conservative thinktank, with close ties to JD Vance in particular, has promoted a 'new right' strategy prioritising a pro-worker, pro-trade union, pro-industry agenda that is scathing of corporate America. Cass was among speakers – including Farage and Kemi Badenoch – at a London conference held by the Alliance for Responsible Citizenship (Arc) this year, sharing a stage with Michael Gove, the Spectator editor and former Tory cabinet minister. Founded by the Canadian psychologist and self-help author Jordan Peterson and the Tory peer Philippa Stroud, Arc's financial backers include the British hedge fund manager Paul Marshall and the Dubai-based investment firm Legatum – who also co-own GB News, where Farage has a prime-time show. Another figure is Matthew Goodwin, also a GB News commentator and regular speaker at Reform rallies. An ex-academic, he studied what he calls the 'realignment' of British politics, whereby the left has shifted to supporting liberal, metropolitan values, allowing the right to hoover up more socially conservative, working-class voters. Farage and Trump share common ground in promising to roll back net zero – ostensibly to boost manufacturing jobs in heavier polluting sectors, including oil and gas, coal, steel and chemicals. And both are courting trade union members and their worries over foreign competition, the impact of decarbonisation and high energy costs on heavy industry. Gary Smith, the general secretary of the GMB union, which includes offshore workers in Scotland among its members, has called for an 'honest debate' about Labour's plans for industry. He told the Guardian that net zero advocates on the left risked fuelling support for Reform by leaving workers out of the debate. 'Climate fundamentalism and rightwing populism are two cheeks of the same backside,' he said. 'We need to have a programme about jobs and apprenticeships to bring back hope. Neoliberalism is dead and globalisation as we knew it is over. Working-class people aren't voting for cheap TVs and training shoes. They want their jobs back.' At an event in Westminster late last year to lobby Labour MPs on high manufacturing energy costs, GMB's shop stewards were approached uninvited by the Reform deputy leader, Richard Tice, trying to curry their favour. But while Reform can count on support from some union members, the labour movement's leaders are furious at its overtures. 'We wouldn't talk to those fuckers. Load of posh boys hanging tough for the working class? They can go fuck themselves,' said one union boss. Paul Nowak, the general secretary of the TUC, said: 'The hypocrisy is stunning. This is a guy [Farage] who was hanging on the coat-tails of Donald Trump. He turns up at Scunthorpe saying he wants to save British Steel at the same time as his mate in the White House is slapping tariffs on steel and could cost jobs across Britain's manufacturing base. 'In industrial communities there is a lot of cynicism about politics and whether it can make a difference. But it can make a tangible difference to peoples lives who is in Downing Street.' For Labour, the challenge from Farage showed the importance of an 'ambitious' industrial strategy, he said. It could be central to its hopes of winning a second term.
