Rachel Reeves has pulled a staggering £66bn from the UK economy: £40bn in the October 2024 Budget, largely from businesses, and another £26bn in the November 2025 Budget, hitting workers, the wealthy and businesses to fund higher welfare spending and build her emergency buffer.
The overall tax burden now stands at a record 38% of GDP, a level so high that, as The Times recently noted, is making the UK lazy. This has been the highest revenue raising budget since records began with the last such tax increase being during the Denis Healey’s Labour budget in 1970’s who said, “I will tax the rich until the pips squeak”.
The rich are leaving as they have homes in various jurisdictions and are mobile; an example of which is Laxmi Mittal who has left and was even mentioned in Kemi Badenoch’s response to Rachel Reeves' budget. Now Labour can obviously not tax the rich as they are leaving, so they are taxing the middle classes.
The middle class feel increasingly squeezed by a series of adverse measures: VAT on private fees, inheritance tax on pension pots, a 2% increase in tax on dividends from April 2026 (additional rate unchanged), a 2% rise in tax on interest and rental income from April 2027, National Insurance on salary sacrifice contributions over £2,000 from April 2029, and a mansion tax on properties worth £2m or more from April 2028, the list goes on. Additionally, the freezing of income tax and National Insurance thresholds until 2031 will bring more people into the tax net and push many taxpayers into higher tax brackets.
This has left many despondent and considering leaving the UK, but where can they go? Once they sell their UK homes to settle elsewhere, returning to the UK becomes nearly impossible, as purchasing another house involves prohibitive legal fees and Stamp Duty Land Tax. The middle class, therefore, find themselves with nowhere to go, effectively suffocating under Labour policies.
To sweeten the pill, Labour has removed the two-child cap, which offers little benefit to middle-class families sending their children to private schools, as affording two, let alone three, remains a challenge. Universal Credit is set to rise by 6.2%, with some other benefits increasing by 3.8%. Energy bills will see a £150 reduction, and the State Pension will rise by 4.8%.
SMEs are equally affected. The employers’ NI threshold was reduced to £5,000 in the last budget, and the minimum wage will increase to £12.71 from April 2026. This is expected to hit the hospitality sector hard, potentially causing more restaurant closures or higher prices for dining out, an added strain on households.
Raising funds will also become more difficult for SMEs, as incentives have been reduced. The Venture Capital Trust income tax relief has been cut from 30% to 20%, which could lead to a funding drought.
Overall, the two budgets are hard-hitting for both businesses and individuals. They risk slowing growth, reducing tax revenues, and failing to meet the objectives they were intended to achieve.
Kaushik Desai is a Principal in Chown Dewhurst LLP a firm of Tax Advisors in London 07540691538
