6 November 2025
New analysis reveals potential impact of rumoured tax rises on households
New analysis from Quilter, the wealth manager and financial adviser, details how a variety of different options reportedly under consideration by Chancellor Rachel Reeves could affect people’s finances across different income levels.
According to Quilter’s modelling, a straightforward one-penny increase in the basic rate of income tax would add around £120 a year for someone earning £25,000, rising to £375 at £50,000, and £875 at £100,000. A two-penny rise would double those figures.
While simple to administer, such changes would hit households already under pressure from frozen tax thresholds and higher living costs, making them politically risky and difficult to square with Labour’s manifesto pledges.
Another option would be to lower the higher-rate income tax threshold, pulling more people earning just above £50,000 into the higher band. This would raise additional revenue without changing the headline rate, but someone earning £50,000 paying around £560 more a year. However, this approach risks being viewed as unfair to those just crossing the threshold and could further complicate an already complex tax system.
Quilter’s analysis suggests the most balanced option could be a two-point increase in the income tax rate combined with a reduction in National Insurance contributions from 8% to 6%. This design would protect lower and middle earners while still raising more from higher earners. At £25,000 and £50,000, the overall impact would be broadly neutral, while those earning £150,000 would see an increase of around £2,250 a year. However, this would be unpopular with pensioners who make up a greater share of the voter base.
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Income levels
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Current
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1p increase IT
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2p increase IT
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2p increase but BR NI 6%
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Lower higher rate threshold for IT & NI
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|||||||||
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IT
|
NI
|
IT
|
NI
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Total impact v current
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IT
|
NI
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Total impact v current
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IT
|
NI
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Total impact v current
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IT
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NI
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Total impact v current
|
|
|
£25,000
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£2,486
|
£994
|
£2,610
|
£994
|
£124
|
£2,735
|
£994
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£249
|
£2,735
|
£746
|
£0
|
£2,486
|
£994
|
£0
|
|
£50,000
|
£7,486
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£2,994
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£7,860
|
£2,994
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£374
|
£8,235
|
£2,994
|
£749
|
£8,235
|
£2,246
|
£0
|
£8,286
|
£2,754
|
£560
|
|
£75,000
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£17,432
|
£3,511
|
£18,056
|
£3,511
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£624
|
£18,681
|
£3,511
|
£1,249
|
£18,681
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£2,757
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£495
|
£18,286
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£3,254
|
£598
|
|
£100,000
|
£27,432
|
£4,011
|
£28,306
|
£4,011
|
£874
|
£29,181
|
£4,011
|
£1,749
|
£29,181
|
£3,257
|
£995
|
£28,286
|
£3,754
|
£598
|
|
£125,000
|
£42,432
|
£4,511
|
£43,681
|
£4,511
|
£1,249
|
£44,931
|
£4,511
|
£2,499
|
£44,931
|
£3,757
|
£1,745
|
£43,286
|
£4,254
|
£598
|
|
£150,000
|
£53,703
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£5,011
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£55,203
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£5,011
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£1,500
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£56,703
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£5,011
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£3,000
|
£56,703
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£4,257
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£2,246
|
£54,557
|
£4,754
|
£59
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Shaun Moore, tax and financial planning expert at Quilter, comments:
“Rachel Reeves faces an incredibly tough balancing act. A straight rise in income tax would be simple to deliver but politically toxic, while tinkering with thresholds risks confusing the system further and creating new cliff edges for middle earners.
“A combined approach of pairing an income tax rise with a National Insurance cut may prove the most pragmatic route. It allows the Chancellor to raise significant revenue while protecting the majority of working households and maintaining the sense that manifesto commitments are being ‘bent’ rather than broken.
“Whatever she decides, this budget will set the tone for how much political capital Reeves is willing to spend to repair the public finances.”
