Six ways the UK’s Autumn Budget could send bond yields spiking

There are two key questions on tax hikes: do they kick in straight away (or at least in April)? And do they raise a predictable amount of revenue?

A substantial portion of last autumn’s tax hikes were implemented this year, raising an extra £24bn, rising to £41bn by the end of the decade, according to Treasury analysis at the time. We suspect markets would like to see a similar degree of front-loading this time.

The government faces a choice. Break its election promises and raise income tax, employee NI or VAT. Politically challenging, but where small changes can raise big and predictable sums. The employer NI hike in April is raising almost exactly what the OBR predicted it would – and if anything, a little more.

Alternatively, it could focus on minor taxes, which often require substantial changes to generate meaningful revenue due to their limited scope. The revenue is unsurprisingly more unpredictable; “other taxes” have raised £4bn less than the OBR expected in the first five months of the fiscal year.

Press reports suggest this budget will land somewhere in the middle, where the emphasis is on targeting tax on asset returns and wealthier individuals. Widening the scope of National Insurance to include landlords, partnerships and pensioners in work could raise up to £5bn. An increase in the corporation tax surcharge for banks also looks likely, as does an increase in dividend taxes. Changes to the way pensions are taxed – be it contributions or payments – are also possible.

The government will almost certainly also extend the tax threshold freeze beyond 2028, a move which will raise up to £10bn/year by the end of the decade, but makes zero difference to borrowing next year.

If this is the plan, then we think it’s one that investors will largely tolerate. Yes, the changes are controversial. Yes, they do focus heavily on minor taxes, and yes, there is a bit of creative accounting. But we would expect the OBR to judge that a material amount of extra revenue would still come in 2026. Importantly, there appears to be less of a hit to businesses at a vulnerable moment in the economic outlook.

More broadly, a budget that focuses on tax hikes will be viewed as more credible than one that leans on spending, simply because the former is less likely to be walked back upon in the future.