UK set for third-largest tax-raising Budget since WWII

Investing.com -- Policy speculation has intensified ahead of next week’s Autumn Budget, with Deutsche Bank economist Sanjay Raja saying the UK is heading for one of its biggest post-war fiscal tightening packages.

The bank expects around £30 billion in tax increases and roughly £5 billion in spending cuts, leaving the 26 November statement on track to become the third-largest tax-raising Budget since World War Two.

While few major surprises are anticipated, Deutsche Bank says one possible wildcard could come from inflation. In its preview, the bank estimated that at least 40 basis points of disinflationary measures were likely.

Anything materially above that threshold “could be a positive surprise for markets,” the report says. This week’s analysis looks more closely at how various cost-of-living measures might influence CPI and RPI trajectories.

The Autumn Budget marks Chancellor Rachel Reeves’s second fiscal statement and comes after what Deutsche Bank describes as an “agonisingly long wait.” The bank notes that macroeconomic downgrades, recent policy reversals and the political need to reinforce fiscal resilience are all shaping the Chancellor’s approach.

In total, Deutsche Bank sees roughly £35 billion in fiscal consolidation — another historically large tightening following last year’s sweeping package.

The core of the consolidation is expected to come from extending freezes on personal tax thresholds. With reports suggesting Reeves plans to honour her manifesto commitments, Deutsche Bank expects the government to avoid raising headline rates and instead rely on back-door revenue measures.

The bank forecasts about £30 billion in tax rises across wealth-related levies such as dividends and capital-gains tax, expansions to the National Insurance base, and targeted sector-specific measures. Higher property taxation, including council-tax or mansion-tax changes, is also likely to feature.

These tax increases are expected to be more back-loaded than front-loaded. Spending cuts, by contrast, are seen as minimal and mostly pushed beyond the current Spending Review ending in 2029–30.

Even with this tightening, Deutsche Bank expects the Budget to “leave more questions than answers.” It forecasts that Reeves will lift her fiscal headroom from £10 billion to a little over £16 billion. Adjustments to gilt financing are expected to be modest, including a £10.5 billion rise in this year’s gilt remit and a cumulative increase of £22 billion through 2029–30.

All in all, the upcoming Budget is likely to influence not just public-sector strategy, but also inflation, borrowing and gilt markets in the months ahead.