Equity Research; Budget 2025 realities

Budget 2025 realities

It has been a long 13 months with considerable international change. The UK economy has stagnated recently with a negative GDP read (-0.1% for September 2025). This recent weakness was grounds for caution in our view.

Ahead of the November 2025 Budget announcement the Office of Budget Responsibility said it expected a bigger than expected fiscal buffer to the fiscal rule – £21.7bn as a result of the Budget, previously it was £15bn. Further details were mistakenly disclosed ahead of the Budget statement which are normally disclosed afterwards. The OBR has since issued an apology and taken responsibility for the wrongly timed disclosure.

The bigger OBR fiscal buffer estimate meant the Chancellor did not have to raise taxes by as much as previously thought.

The cumulative tax increase of £29.8bn by 2031 was overall seen as within expectations and a ‘Goldilocks’ ‘not too hot, not too cold’ scenario that broadly kept promises made by the Labour manifesto.

The UK government now expects GDP growth of 1.4% in 2026 and CPI inflation of 2.5% in 2026 with a 2% target possible in late 2026. The expectation is 2025 will see GDP growth of 1.5%.

The Chancellor said the national debt will be at £2.6trn in 2025 with the plan expecting to bring the UK to a balanced budget by 2029.

Main measures……a ‘good’ smorgasbord

• Income tax thresholds have been frozen for a further three years to 2031 raising £8bn (the previous tax threshold freeze was until 2029)
• Asset related income taxes, property, savings, dividend tax rates increased by 2% raising £2.1bn
• No increase in income tax, VAT or National Insurance with capital gains tax left alone
• New EV mileage based charge on battery electric and plug in hybrid cars from 2028 raising £1.4bn
• “Mansion tax” – a council tax surcharge on properties worth over £2m raising £400m (from 1st April 2028) – the levy will be graded with properties over £2m paying £2m paying £2,500 p.a. and over £5m paying £7k p.a.
• Introducing a £2k cap on the ‘salary sacrifice’ for pensions from 2029
• Remote Gaming Duty will rise to 40% from 1^st April 2026 and be levied on companies with a new General Betting Duty of 25% for remote betting  from 1^st April 2027. UK horse racing will be excluded as will self service terminal betting on licensed premises.
• Widening incentives for enterprise, 3 years stamp duty exemption for new IPOs in London
• Reducing business rates for leisure properties
• Cash allowance in cash ISAs reduced to £12,000 from £20,000 for under 65s with the balance £8,000 in stocks & shares.
• £820m extra for Scottish government, £370m for Northern Ireland executive.
• Two child benefit cap is to be scrapped from April 2026 at a cost of £2.3bn in 2026/27 and £3bn in 2029/2030 – this measure is intended to help cut child poverty
• Rise in Living wage from £12.21/hr to £12.71 per hour / increase in National Minimum wage from £10/hr to £10.85/ hr.
• A new approach to Disability Benefits bringing back face to face assessments intended to get 15k people back to work
• Abolishing access to Class 2 national insurance for those living abroad
• The government has managed to recover c. £400m from C-19 pandemic related spending on contracts.
• Exemption of blood compensation payments from inheritance tax

Gilt yields pre / post Budget

Gilt yields started the week with 10 years just above the 4.5% level and 30 years at 5.35% and well off their peak of 5.693% on 2^nd September 2025.

The week started on a positive note with Moody’s confirming the UK credit rating as Aa3 ‘stable’ citing the UK’s significant strengths including a ‘wealthy diversified economy’.

source; www.css-investments.com

The Budget impact early assessment has been mildly positive….

source; www.css-investments.com

Gilt yields have moved down between 2 to 4 basis points hence the Budget has delivered a marginally lower yield curve. Importantly there has not been significant volatility in fixed income markets today.

Since the Truss debacle of September 2022, Chancellors have been minded not to do anything to trigger a showdown with bond investors. This Budget is broadly positive for fiscal prudence.

Equities Winners/ Losers

Winners:- Banks/ Insurers – these sectors are higher on the basis that the Bank Corporate Tax Surcharge levy has been left alone at 3%. IG Group is sharply higher.

Losers:- Housebuilders – higher ticket providers, Berkeley Group and Persimmon are slightly lower. This is due to the rise in residential property related property taxes.

UK based oil & gas companies are lower after the Budget confirmed windfall taxes would remain until March 2030 dashing hopes the date would be brought forward hurting Harbour Energy.

Gaming companies with Evoke badly hit declining sharply.

Mixed:– Consumer stocks, pharmaceuticals, no real impact, oil & gas majors – BP & Shell are ahead.

Conclusion

Given the budget constraints on the UK government, Budget 2025 could have been far worse. It could have tried immediately hiking income tax. But consumers and businesses have been largely left alone.

The Chancellor certainly looks far safer in her job than before and delivered a credible performance at the dispatch box. This should help sterling and gilts looking forward. The monetary path will not be upset by this Budget with investors still expecting possibly a 0.5% cut over the next year. The Chancellor certainly looks far safer in her job than before.

Overall the hype and fear ahead of this Budget were misplaced and what has arrived is neutral with the government choosing to make only very targeted measured moves impacting in a few years’ time. The Budget is mildly positive for the UK context, building confidence that the fiscal plan remains on track.

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