Chancellor Rachel Reeves is preparing for further tax increases following a record £41.5bn tax rise aimed at addressing a £22bn deficit in public finances. Despite her assurance to business leaders that she would not resort to more borrowing or taxes, experts warn that additional tax hikes are “highly likely” in the upcoming Spring Statement on March 26. Sanjay Raja, Deutsche Bank’s chief UK economist, said an extension to the freeze in income tax thresholds was likely while an increase in income tax would probably only come if the country falls into recession. Jason Hollands, managing director of Evelyn Partners, suggests income tax thresholds could be lowered – a view echoed by Nimesh Shah, chief executive of Blick Rothenberg, who said the additional rate threshold could be a target. Tim Stovold, partner and head of tax at Moore Kingston Smith, said reversing the Tories’ cut to employee NICs from 10% to 8% could be another point of attack, as could reforming pension tax relief.

Recruiters have reported a significant slowdown in hiring during December, as companies aim to reduce staffing costs amid tax increases, new employment rights, and a deteriorating economic environment. The KPMG and Recruitment & Employment Confederation (REC) monthly survey indicated the sharpest decline in permanent staff placements since August 2023, with the index falling from 40.7 in November to 39.5 in December. Neil Carberry, chief executive of REC, said the report reflects “a weak mood in some businesses as they built their budgets for this year.” Despite the decline in hiring, wage growth remains robust, with employers still willing to raise starting salaries to attract top talent, even as job openings decreased across all sectors for the second consecutive month.

Mick Roberts, a 57-year-old landlord, is among approximately 400 buy-to-let investors facing potential tax bills of up to £1m after restructuring their businesses with Less Tax for Landlords. The firm, which charged clients substantial fees, promised to help landlords save on HMRC bills by forming limited liability partnerships. However, HMRC has warned that such schemes “do not work” and may lead to larger tax liabilities. Tax experts suggest that the restructuring could inadvertently trigger significant stamp duty charges, potentially pushing many landlords into insolvency. Roberts said: “We are 100% victims in this. I didn’t even want my houses. I kept them for my tenants, and now I’ll be homeless alongside them. It’s horrendous.” Commenting on the situation, Dan Neidle, founder of Tax Policy Associates, told the Telegraph: “I’d like to see HMRC being more sympathetic to the clients, and much more aggressive dealing with the firms that sell doomed tax schemes.”

According to a recent survey by Grant Thornton, 54% of businesses plan to increase prices in 2025 due to the Government’s national insurance hike. Schellion Horn, head of economic consulting at Grant Thornton, warned that this would “put pressure on inflation” and compel the Bank of England to maintain higher interest rates for an extended period. The survey, which included 800 UK firms, also revealed that 52% of businesses intend to reduce hiring, cut jobs, or lower employee pay. Horn remarked: “Just when there is light at the end of the tunnel, the market is now faced with further cost increases.”

The Bank of England is set to reduce the regulatory burden on UK banks and allow insurers to make riskier investments without prior approval, responding to government calls for easing post-financial crisis regulations. Sam Woods, deputy governor and head of the Prudential Regulation Authority, stated that some rules may have been “overcooked” and could have negatively impacted the financial sector. He stressed the need to avoid a “race to the bottom” in regulation while acknowledging the necessity for reform. Woods said: “We’ve already cut reporting on the insurance side by a third,” and indicated that further reductions in reporting requirements for banks are forthcoming. The proposed changes include a new mechanism for insurers to invest in riskier assets more swiftly, reflecting a shift towards promoting growth and competitiveness in the financial services sector.

UK Finance has predicted a boom in remortgage activity this year, with 1.8m fixed-rate mortgages maturing. Consumer behaviour is shifting towards five-year fixed products, with many facing stiff hikes. Research from the Bank of England suggests mortgage brokers are steering homeowners towards shorter-term deals to increase fees from repeat business.

The UK financial services sector experienced a significant resurgence in mergers and acquisitions (M&A) activity last year, reaching its highest level in over a decade. According to figures from EY, the number of deals surged by 26% year-on-year, totalling approximately 380 deals in 2024, with a combined value of £20.2bn, up from £12.5bn in 2023. Notable transactions included Nationwide’s £3.9bn acquisition of Virgin Money and Aviva’s £3.7bn purchase of Direct Line. Damian Hourquebie, EY’s UK financial services strategy and transactions leader, said: “If the UK’s economic outlook continues to gradually improve as expected, we anticipate the focus on M&A activity will continue throughout 2025.” However, EY cautioned that “macroeconomic uncertainty and geopolitical tensions” could pose challenges in the coming year.

The recent withdrawal of six major US banks from the UN-sponsored Net Zero Banking Alliance (NZBA) has raised concerns about the future of climate action in the financial sector, the Guardian reports. Analysts suggest that this exodus is a strategic move to avoid potential backlash from rightwing politicians, particularly with Donald Trump’s impending presidency. Paddy McCully, a senior analyst at Reclaim Finance, remarked: “The sudden exodus of these big US banks out of the NZBA is a lily-livered effort to avoid criticism from Trump and his climate denialist cronies.” Despite the departures, the NZBA still comprises 141 banks, including major European institutions, which control about 40% of global banking assets. Toby Kwan from the Carbon Trust noted that the remaining banks could strengthen their commitments to climate action in light of the US banks’ exit.

Two British investment trusts managed by Janus Henderson have urged shareholders to reject Saba Capital Management’s proposal to replace their boards, fearing it would hand control to the US activist investor. Wendy Colquhoun, chairman of Henderson Opportunities Trust, said: “Saba is attempting to take control of the company with no assurances as to what will happen to shareholders’ investments.” The trusts are currently offering shareholders a full cash exit at net asset value or the option to transition into an open-ended fund. James Williams, chairman of the European Smaller Companies Trust, labelled Saba’s motives as “self-serving.” Other trusts targeted by Saba include Baillie Gifford US Growth Trust and Keystone Positive Change, which expressed dismay at Saba’s actions.

The Chancellor is at risk of breaking her fiscal rules as 10-year government borrowing costs surge to their highest level since the 2008 financial crisis, reaching 4.825% on the back of concerns about Labour’s tax and spending plans, and anaemic economic growth. The Treasury issued a rare public statement for the second successive day on Wednesday, insisting the Government has an “iron grip” on the public finances. However, analysts warn that rising borrowing costs could eliminate the £9.9bn headroom she had set in her October Budget. The pound has also fallen to its lowest level against the dollar since April 2024, reflecting market anxiety. Brad Bechtel from Jefferies said the UK is experiencing a “micro version” of the bond market meltdown seen after Liz Truss’s mini-budget in 2022. Paul Johnson from the Institute for Fiscal Studies warned that without tax increases, spending cuts may be necessary to meet fiscal targets.

Experts from the EY ITEM Club predict that the Bank of England’s Monetary Policy Committee (MPC) will reduce the base rate, currently at 4.75%, “relatively slowly” throughout the year. This caution follows a Halifax survey indicating a slight decline in average house sale prices by 0.2% in December, marking the first drop in nine months. Despite this, there was a modest annual increase of 3.3% in house prices. Concerns about rising inflation, driven by wage, energy, and food price increases, have tempered calls for rapid rate cuts. Matt Swannell, Chief Economic Advisor to the EY ITEM Club, noted that financial markets now anticipate fewer interest rate cuts, influenced by the UK Autumn Budget and the US presidential election.

Research by Aegon reveals a growing optimism regarding personal finances for 2025, with 60% of respondents feeling positive, up from 52% in 2024. However, women (54%) and individuals aged 50 to 59 (47%) are less optimistic compared to the overall population. The survey highlights that enjoying life, building emergency savings, and covering living costs are the top financial priorities. Steven Cameron, director of pensions at Aegon, said: “As we enter 2025, it’s encouraging that positivity on personal finances has jumped.” Despite this optimism, he cautioned about underlying challenges, particularly for women and those in their 50s, who may face difficulties in saving for retirement. The survey included 2,000 participants across the UK, conducted by Opinium in December 2024.