By Zhao Xiaona, Larry Neild
LONDON, Nov. 27 (Xinhua) -- The British government this week unveiled its 2025 Autumn Budget, a cautious fiscal package aimed at shoring up the country's public finances while easing political pressure.
As Britain continues to struggle with weak growth momentum and lingering inflation risks, the budget proposed by Chancellor of the Exchequer Rachel Reeves avoids headline tax rate increases but relies heavily on broadening the tax base.
Confirmed measures include extending the freeze on personal income tax thresholds, abolishing the two-child benefit cap, imposing new levies on high-value properties, raising gambling duties, tightening tax relief under salary sacrifice schemes, and introducing new charges linked to electric vehicle use.
The British Treasury said the package creates around 22 billion pounds (29.14 U.S. dollars) of fiscal headroom, designed to buffer public finances against future shocks.
STEALTH TAXES & PRESSURE ON LIVING STANDARDS
A central element of the budget is extending the freeze on personal income tax thresholds for another three years, a policy first introduced in 2021. Traditionally, thresholds rose in line with inflation, but with wages increasing while thresholds fixed, more people will be pulled into higher tax bands.
The Office for Budget Responsibility (OBR) estimates this measure alone will generate roughly 8 billion pounds a year in additional revenue.
Manchester University's Professor Ian Scott told Xinhua that Reeves has justified this move at the political level by increasing public spending on wages and welfare and maintaining the state pension's triple lock.
Professor Iain Begg at the London School of Economics described the policy as a classic "stealth tax," which, although it didn't directly break Labour's election pledge of not raising income tax, it "inevitably brings more low- and middle-income households into paying more tax."
Steve Nolan, a senior lecturer at Liverpool John Moores University, said the frozen threshold of about 12,500 pounds, combined with rising state pensions, means more retirees will be drawn into the tax system for the first time. "For many pensioners," he said, "It's the psychological shift from not paying tax to paying it."
LIMITED RELIEF FOR BUSINESS & SMEs
For businesses, particularly small and medium-sized enterprises (SMEs), analysts said the budget is noticeably more restrained than previous fiscal packages.
According to Professor Scott, the budget helps stabilize political sentiment but offers limited structural relief for firms facing weak demand and rising costs. While hospitality and small business tax adjustments are politically visible, the overall operating environment remains tight.
Nolan said, although the impact on business is far smaller than last time, which raised minimum wages and increased employer national insurance contributions, there is also little in Reeves' budget that "genuinely clears the path for growth."
Analysts noted that while the current budget avoids major new shocks, it also introduces few strong incentives for expansion, exports, or productivity gains.
FISCAL STABILITY VS. GROWTH CHALLENGES
The broader challenge lies in how Britain can stabilize its public finances while reviving growth in a structurally weakened economy, analysts said.
Public debt stands at nearly 3 trillion pounds, with annual interest payments exceeding 100 billion pounds, leaving the government with limited room for policy maneuver. Meanwhile, although inflation is easing, it remains elevated.
October's headline CPI rose 3.6 percent year on year, while core inflation stood at 3.4 percent. The labor market has also begun to soften, with employment falling consecutively in September and October. Real wage growth in the third quarter was just 0.5 percent.
Against this backdrop, economists said the credibility of the budget rests heavily on optimistic economic assumptions.
Although official forecasts expect inflation to ease to around 2.5 percent by next summer and potentially return to the 2 percent target by the end of next year, Professor Scott warned that "significant underlying price pressures remain and the path forward is far from certain."
Professor Begg said the expanded fiscal "headroom" could prove fragile in practice and could be used up very quickly. He cautioned that even modest economic shocks could erode the government's buffer.
From a market perspective, Nolan said the budget's central logic was to reassure investors and lower the cost of borrowing. "If greater stability leads to a more positive reaction from bond markets, brings down gilt yields and reduces borrowing costs, then in an ideal world it could support lower interest rates and stronger growth," he said. "But that remains an optimistic scenario."
While the budget may have stabilized expectations in the short term, deeper structural problems remain unresolved, Scott stressed. "The potholes are still there - and they haven't been filled." ■
