Why there is a budget black hole - and how the chancellor might fill it

Wednesday, 29 October 2025 19:23

By Sam Coates, Deputy Political Editor

Here are my rolling assumptions for the shape of the budget on 26 November, which I will update as the date draws closer.

It sets out why there is a black hole - and what might fill it, with greater confidence about the former. Note the Treasury has not yet received the final forecasts.

Some of the suggestions and assumptions have been drawn up with the help of the Resolution Foundation, but the judgements are mine.

The size of the black hole

£10bn - Forecast downgrade, comprising of lower future productivity offset by upgrade to wage growth

£2bn-£4bn - Debt interest costs, depending on the window picked by the Office for Budget Responsibility

£10bn - Existing policy turns: winter fuel allowance, welfare/PIP U-turn, fuel duty freeze rollover

£5bn - More spending on lifting two-child benefit cap, help for energy bills and also for NHS England redundancy payments

£5-£10bn - Extra headroom

Total: £32-£39bn

?Listen to Politics at Sam and Anne's on your podcast app?

How could Rachel Reeves fill it?

£5bn - Reducing unallocated departmental spending in 2029/30

£8bn - Freezing personal allowance

£4bn - Close capital gains tax loopholes on people moving abroad and after death

£2bn - Higher rate council tax band

£2bn - Get Limited Liability Partnerships to pay national insurance

£1-£2bn - Higher gambling taxes

£1bn - Raise higher rate income tax

Total: £23bn

How to fill the rest?

One big measure or lots of little measures. The Resolution Foundation has explored putting up income tax and simultaneously reducing national insurance.

This means for most employees their tax bill doesn't change. But the self employed are paying more and pensioners pay more, along with landlords who pay more because income tax is paid on rental income not national insurance. This raises £6bn.

Sky News