The Government’s fiscal headroom has decreased by £12bn due to slow economic growth and rising public borrowing costs since the start of the US-Iran conflict. KPMG estimates Chancellor John Healey now has £11.6bn to meet fiscal rules, significantly down from the £23.6bn estimated earlier this year. Deutsche Bank, it is noted, puts the figure even lower at £8.5bn, with higher interest-rate expectations and rising inflation increasing the cost of servicing Government debt. Yael Selfin, chief UK economist at KPMG, said: “Restoring the previous level of headroom could require tax rises or spending reductions.” Despite the deteriorating fiscal position, KPMG expects GDP growth of 1.3% this year and 1.4% in 2027.

A BDO survey has revealed growing optimism among medium-sized businesses, with 80% of executives saying they are more willing to invest over the past three months. Firms with revenues of £10m-£300m identified leisure and retail, financial services and manufacturing as areas with the greatest growth potential, while investment plans were spread across London, the South East and the Midlands. Businesses said they want Chancellor John Healey’s first Budget to improve access to finance and credit for the private sector.

Data from the Office for National Statistics (ONS) shows that UK retail sales increased by 0.5% in August, reversing a 0.5% fall in July and beating economists’ forecast of a 0.2% decline. The rise was driven by a rebound in online shopping, department stores and clothing retailers. Online sales rose 2.5%, while overall non-food sales increased 0.6%. However, higher fuel prices continued to weigh on consumers, with fuel sales falling 1.3%. Overall sales volumes rose 0.9% over the three months to August.

The UK labour market stabilised in August, with total job postings rising to almost 1.7m, up 10% year on year, according to the Recruitment and Employment Confederation (REC). New postings reached 712,781, although the wider labour market remains subdued, with falling vacancies, weak private-sector wage growth and youth unemployment above 16%. The REC has urged the Government to reverse the lower employer National Insurance threshold to support hiring and growth. Maxine Bligh, interim chief executive of the REC, said: “The latest job figures are a clear sign for the Chancellor that the labour market is resilient but needs stimulating to really kick on.”

Sources claim that Prime Minister Andy Burnham is considering an early general election to secure a fresh mandate for income tax rises. With Treasury headroom said to have fallen from £23bn to just £5bn amid higher borrowing costs, energy prices and inflation, Chancellor John Healey is examining measures to raise £10bn–15bn. These could include increases to capital gains and corporation tax, bank and oil windfall taxes, and extending the mansion tax. Options also include a 20% exit tax and a 2% annual wealth tax on assets above £10m. It is suggested that an early election would allow Labour to abandon a manifesto pledge not to raise income tax, VAT or National Insurance.

John Healey plans to reduce taxes for high street businesses in his upcoming Budget. Proposed changes include raising the small business rates relief threshold from £12,000 to £17,096, potentially exempting thousands of firms from business rates. The Chancellor is also considering extending transitional relief to slow bill increases after April’s revaluation. The measures form part of a wider package to support high streets, entrepreneurs and small businesses, alongside existing plans for a 20% rates cut for pubs, clubs and live music venues. David Hale, government affairs director at the Federation for Small Businesses, said the group intends to make the case for a “proper, sizable increase to small business rates relief.”

The Government is considering lowering the mansion tax threshold from £2m to £1.5m, potentially increasing the number of affected properties from 134,000 to 271,000. Chancellor John Healey is examining the change ahead of the Budget, although no decision has been taken. The Government has ruled out wider reforms to stamp duty and council tax previously championed by Andy Burnham because they would require extensive revaluation and take years to implement. Wandsworth, Kensington and Chelsea, Westminster and Richmond councils have urged Mr Healey to reconsider the mansion tax, warning some residents could be forced to sell their homes. Arun Advani of the Centre for the Analysis of Taxation said lower-value properties currently face proportionately higher council tax rates and suggested a lower mansion tax threshold could make property taxation more equal.

The Foreign Office is under investigation by HMRC after officials found that 42 workers had been wrongly classified as contractors rather than employees under IR35 rules. FCDO Services, which manages the Foreign Office’s diplomatic bag system, has already set aside £14.8m for the error, saying this sum “reflects management’s best estimate of the liability following a detailed review of contractor arrangements and ongoing engagement with HMRC.” The Foreign Office classifies 88% of its workers as “inside” IR35, meaning that they are not treated as contractors for tax purposes.

The Government is reportedly considering scrapping its inheritance tax on family farms as part of the Budget, in a move estimated to cost the Treasury about £300m a year. Under the current plans, family farms faced a 20% levy on assets over £1m, with this since raised to £2.5m. A proposed alternative to scrapping the IHT on family farms entirely would be raising the threshold to £5m, although critics warn that this would still leave many farms facing large bills.

A YouGov poll found 57% of respondents consider inheritance tax “unfair”, as the Conservatives explore the possibility of abolishing the charge. IHT raised £8.5bn in 2025/26, with the Office for Budget Responsibility forecasting receipts could reach £14bn by 2030/31. Tax Policy Associates estimates that around 20% of pensioner households in England and Wales could eventually fall within the scope of IHT as rising house prices, frozen allowances and the inclusion of unused pension funds in estates increase exposure.

The EU is considering a windfall tax on oil companies due to soaring profits linked to the conflict in the Middle East. German finance minister Lars Klingbeil said that an EU summit in Dublin will push the European Commission to develop a tax plan within a month. While some EU nations support the tax, EC economic commissioner Valdis Dombrovskis indicated that the decision should rest with individual member states.

Venture capital trusts are calling on Chancellor John Healey to reverse a cut to the income tax relief available to VCT investors, warning it could reduce fundraising by 20%–40% and limit funding for innovative, fast-growing businesses. VCTs currently support around 1,100 firms with £6.6bn of funds and are popular with wealthy investors partly because of their tax incentives. The Government increased the annual VCT investment limit to £200,000 but reduced the upfront income tax relief from 30% to 20%. The Venture Capital Trust Association said the change has weakened investor confidence, with 62% of VCT-backed founders planning to scale back growth, 45% considering job cuts and a quarter potentially moving abroad.

Labour chair Bridget Phillipson says Ineos founder Sir Jim Ratcliffe has lost the “moral high ground” by criticising the UK over high taxes while living as a tax resident in Monaco. Sir Jim, the co-owner of Manchester United, had said he has lost confidence in the UK because of high taxes and immigration, describing the country as “on the slide.”