On Wednesday 26 November, Chancellor Rachel Reeves will deliver her second budget. As with the previous one, there is widespread speculation about what it may contain, and what it could mean for both businesses and pound sterling. Here’s our overview.
What we know
Last year’s budget brought changes to personal and business taxation, including adjustments to Capital Gains Tax and National Insurance. This time, the expectation is that further fiscal tightening may be needed to address a gap in public finances, currently estimated by the Office for Budget Responsibility (OBR) to be around £20 billion. The OBR’s final forecast will be published on 26 November alongside the budget.
In a speech on Tuesday 4 November 2025, the Chancellor refused to rule out the possibility of tax rises and highlighted global economic pressures and shifting geopolitical dynamics as key factors shaping current fiscal decisions. The speech provided greater clarity about where the current administration stands ahead of the budgetary announcement, following Kier Starmer’s refusal to rule out raising major taxes. Since then, it has been reported that proposals to increase the basic rate of income tax have been ditched.
Commenting on the speech, Chief Political Correspondent for the BBC, Henry Zeffman said: “Taxes are going up. If there was any glimmer of doubt about that before this speech, there isn’t now.”
Market reaction has been felt in the weeks since the Chancellor’s speech on 4 November 2025. Sterling weakened against the euro and dollar following the speech.
Exactly which tax measures will be used to raise additional revenue remains uncertain, but several areas are under discussion. Whilst entirely speculative, here are some potential changes that could come into play.
Which policies are under consideration?
Capital Gains Tax
Last year, the basic rate rose from 10% to 18% and the higher rate from 20% to 24%. Further alignment with income-tax rates is possible, though this could deter investment, something the government are keen to increase.
ISAs
A reduction in the annual ISA allowance (currently £20,000) has been discussed as a potential measure, to raise revenue and encourage investing at the same time. Analysts at BDO note that “for many years the cash ISA limit was half the current annual limit… so a return to this structure may be a long term goal.”
Pension allowance
The cap on tax-free lump-sum withdrawals from pensions was left unchanged last year. While adjustments remain possible, such a move would likely have limited short-term fiscal impact.
Income Tax and National Insurance
Affecting the largest proportion of the population these taxes are both politically sensitive and significant sources of potential revenue. Rather than headline rate changes, a continued freeze on tax thresholds beyond April 2028 appears more likely, particularly following reports of a U-Turn on proposals to “raise income tax rates by 2p but compensate workers with a 2p National Insurance cut”. A freeze would gradually increase the effective tax burden as inflation and wages rise.
Property and wealth-related taxes
Potential reforms to property taxation could include the replacement of stamp duty and council tax with a single annual levy on homes above a certain value. There are also discussions around whether rental income could become subject to National Insurance. Broader wealth-tax proposals have been floated by various groups but have not been adopted by the current government.
Market impact and outlook
Last year’s budget delivered a record £40 billion of tax increases, paired with expectations of improving economic conditions. Persistent global uncertainty, however, has in turn made further fiscal measures more likely.
Speculation has already had an impact on currency volatility, with the pound recently reaching its weakest levels against the euro since 2023 and GBP/USD falling to a new seven-month low.
FX Consultant Joe Tuckey provided some exclusive commentary on the market impact ahead of the announcement:
“Markets are a discounting mechanism, always trying to ‘price in’ now, what they expect to unfold in the future. Just a month ago, sterling remained sanguine, particularly against the US Dollar, but recently markets have become less friendly toward sterling as the budget approaches, especially as they now fear a more onerous set of policies than previously assumed.
“The wave of selling pressure from the big 1.3480 technical level has recently also breached the May and August lows of 1.3140. As such, it’s reasonable to assume much of the ‘bad news’ is now ‘priced in’, but some sterling downside ‘event risk’ around the budget still clearly remains.
“The derivatives market (options) relating to sterling still offers clues to market sentiment, with the cost of buying downside options rising to the highest level since the beginning of the year. Now that the 1.3140 level has been breached, market participants will now focus on the 1.2770 and 1.2620 as possible technical levels to be tested should more bad news be forthcoming on November 26th.”
Any potential changes will be closely watched by investors and business owners alike. According to the Federation of Small Businesses (FSB), many small companies remain cautious about the outlook, with “nearly a third of small companies…predicting they’ll downsize, sell up or close down in the next year.”
In closing
Until the Chancellor’s statement on 26 November 2025, much remains uncertain. What is clear is that markets and businesses will be paying close attention to the balance between fiscal responsibility and economic support.
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