A recent report from the National Institute of Economic and Social Research (NIESR) has raised concerns across the small business community. The report claims that the UK government will need to increase taxes to meet its planned spending and fiscal rules in the near future.

NIESR’s warning: a shortfall in the Public Purse

NIESR, one of the UK’s most respected independent economic think tanks, has warned that the government faces a budgetary shortfall of over £40 billion by the 2029–30 fiscal year and will need to find more than £50 billion to maintain a comfortable fiscal buffer.

This gap is primarily due to sluggish economic growth, higher borrowing costs, and welfare spending commitments.

The government’s own fiscal rules require that all day-to-day public spending is covered by tax receipts. With spending on health, social protection, and other core services rising, and economic growth underperforming, the gap between planned expenditure and income is growing.

The Financial Context: Spending and Commitments

The 2025/26 UK government budget is projected at £1.335 trillion, with the largest single area of spending being social protection (including pensions and welfare), followed by health and education. Increasing public service costs, policy reversals on welfare benefits, and ongoing pressures such as defence spending have strained public finances further.

Given these pressures, policy experts and bodies like NIESR argue that significant steps are needed to bring the UK’s borrowing and spending back in line with long-term economic stability.

What Tax increases are likely?

While the government has pledged not to raise National Insurance, Income Tax, or VAT on ‘working people’, analysts believe there are still several potential levers that could be used to increase tax revenues after the Autumn Budget. These include:

• Freezing income tax thresholds: Extending the current freeze on income tax bands beyond 2028 pushes more people into higher tax brackets as wages gradually rise, increasing government revenue in a less visible way. NIESR suggests this could raise around £8 billion a year.
• Council tax reform: There are suggestions to update or replace England’s outdated council tax system, with one option being the introduction of a land value tax. Reforming council tax bands could generate additional funds with less political pain than direct tax increases.
• Capital Gains Tax (CGT) and Inheritance Tax (IHT): Draft legislation is being reviewed for possible CGT and IHT reforms, including changes to business asset disposal relief, agricultural relief, and the potential alignment of CGT rates with income tax rates.
• ISA and pension tax relief adjustments: These changes could reduce the tax-free allowances, particularly for higher earners, with further details expected later this year.
• Wealth tax speculation: Although the Chancellor has been reluctant to commit publicly, speculation continues regarding a possible targeted wealth tax or a package of measures aimed at higher net worth individuals.

It’s important to note that at this stage all of these are entirely speculative; the government may opt for a combination of smaller measures rather than one major headline change. We expect to know more after the Autumn Budget, which is likely to be in late October or early November. No date has yet been announced.

The broader outlook: Economic and Political Realities

The government is in a challenging position, needing to balance fiscal responsibility with manifesto pledges not to raise taxes on working people, though we still don’t have an explanation of that demographic. NIESR and other commentators describe this as an ‘impossible trilemma’: meeting legally binding fiscal commitments, upholding spending priorities, and avoiding broad-based tax hikes.

With public debt near 100% of GDP and interest costs on national borrowing at record highs, the need for fiscal caution is clear. The pressure is likely to remain on the government for the foreseeable future as it attempts to grow the economy and maintain confidence in the UK’s financial sustainability.

What can business owners do?

Although no definitive changes have been announced, and the details will not be known until the Autumn Budget, now is the time to take stock and consider your business’s tax resilience and planning. Reviewing your exposure to the potential changes discussed above could make all the difference if measures are introduced with little notice.

As always, we recommend staying informed and being proactive rather than reactive. If you’d like to discuss how any upcoming fiscal policy changes might affect you or your business, or would like some help in preparing your business for possible reforms, please get in touch.

Beyond the above though, there really isn’t much we can do as business owners! We have to remain positive, keep pushing on and wait for confirmation of any changes that we’ll then have to deal with.