Budget 2025: The Chancellor’s Job Is Now Even More Challenging

The Chancellor’s Spring Statement which engineered a return to her £9.9bn fiscal headroom has already disappeared.

In early June, the Chancellor effectively abandoned the fiscal headroom by announcing a climb down on Winter Fuel Payments - costing the Exchequer £1.25bn a year. Then, at the end of June, the Prime Minister took his own slice out of the fiscal headroom by limiting the proposed tougher Personal Independence Payment regime to new claimants, at a cost of about £2.5bn a year. 

July was even worse for the Chancellor. What remained of the savings from the planned disability reforms were kicked into the long grass (AKA abandoned). On the Institute for Fiscal Studies’ reckoning, the result is an extra £5.5bn per year on welfare costs in 2029/30. In addition, in its latest economic forecast, the OBR down-graded its 5-year GDP growth forecast by 0.7% per year and increased its estimate for Government borrowing by 3.1% of GDP.

Cuts to GDP and productivity growth assumptions especially, have a much more significant financial impact than the Winter Fuel and disability benefit U-turns. For example, shaving just 0.1% from future annual GDP growth reduces tax revenue by about £10bn a year. The latest Treasury consensus of independent forecasts points to GDP growth of 1.0% in 2026, whereas the OBR’s March 2025 economic and fiscal outlook assumed 1.9%. Back in March, the consensus figure was 1.3%.

So how might the Chancellor respond in the November budget? Extending the freeze on income tax allowances and bands by another two years to April 2030 – worth about £10bn a year by 2029/30 – now looks a distinct possibility. Could 2025 be the year when the Chancellor finally grabs the pension tax relief lever?

What does all this mean for later life financial planning? Over the next few months in the lead up to the Budget on 26th November we will be providing insightful commentary and advice for those in later life. This can be best accessed reviewing our regular blog articles and commentary on the Harold Stephens website and social media channels. Follow this link for ‘Harold Stephens IFA’ on You Tube and subscribe to the channel to get the very latest videos direct from Richard Higgs, later life financial planning specialist.

Finally, register and reserve your place at one of our 2 post-budget Later Life Financial Planning live events to be held on Wednesday December 3rd 2025 by emailing office@haroldstephens.co.uk.