UK Budget: Where Will the Money Come From?

GBP/USD

Key zone: 1.3180 - 1.3280

Buy: 1.3300 (on strong positive fundamentals) ; target 1.3450-1.3500; StopLoss 1.3230

Sell: 1.3150 (after retesting the 1.3250 level) ; target 1.2950; StopLoss 1.3230

Chancellor of the Exchequer Rachel Reeves has presented a provocative draft budget aimed at stabilizing public finances while simultaneously providing additional support to the economy. Amid weak productivity and pressure on household incomes, the government is betting on higher taxes rather than spending cuts. The market has already shown its first reaction — now it is crucial to understand what triggered such intense debate.

The proposal includes roughly £26 billion in additional tax revenues through tighter tax policy and an extension of “stealth taxes” (fiscal drag).

Key sources of funding (through 2030):

• Maintaining the current income tax thresholds until 2031 — expected revenue of around £23 billion in 2030/31;
• Restricting pension contribution relief: contributions above £2,000 will be taxed for both employer and employee (≈£4.7 billion in 2029/30 and ≈£2.6 billion in 2030/31);
• Additional property tax: homes valued at £2–2.5 million — £2,500 per year; above £5 million — £7,500 (≈£0.4 billion annually starting 2028/29);
• Higher taxes on capital income and wealth: dividend rate adjustments, savings taxation, rental income rules, revisions to ISA and pension benefits;
• New sector-specific levies, including gambling tax reform, a UK tourism levy, private aviation tax, EV-related charges, and others.

At the same time, public spending will increase: removal of the two-child benefit cap, updates to disability support, cooling demand for luxury real estate, and other measures. Overall, the net fiscal tightening remains moderate, but the structure of the tax base changes significantly.

The increase of the National Living Wage (NLW to £12.71 from 2026) raises costs for retail, hospitality, and small business. Analysts view the budget as broadly positive in impact but conflict-prone and unstable in tax structure.

The document improves debt-trajectory sustainability but does not resolve the core problem — low economic growth, which remains the most important long-term driver for GBP.

An unauthorized leak of budget details to the media before Reeves’ official speech caused a nervous but overall positive market reaction: investors concluded the plan contains fiscal discipline and makes a repeat of Liz Truss’s mini-budget crisis unlikely.

The draft also expands the policy space for a BOE rate cut at the upcoming meeting, although inflation is expected to return to target only in 2026. Political noise around accusations against Reeves — including a potential FCA inquiry — has not yet turned into a meaningful GBP risk premium.

Sterling will likely remain in the upper part of its current ranges against major currencies, with a mild bullish bias. The most probable zone for GBP/USD is 1.33–1.37, with a potential pullback to 1.3550–1.3600 if political stability persists and global risk appetite remains intact.

Note: the budget is not yet approved, and amendments or compromises are possible.

The vote on the Finance Bill 2025/26 remains uncertain — it could take place in mid-December 2025, January 2026, or, in case of prolonged debate, even late Q1.

So we act wisely and avoid unnecessary risks.

Profits to y’all!