Submitted by Bill Fernie
23rd September 2026
With the October Budget now only weeks away, the speculation machine is beginning to work overtime.
Almost every day brings another suggestion about what Chancellor John Healey might do. Personal tax allowances, capital gains tax, pensions, wealth taxes, savings and spending are all appearing in stories about what could be announced on 28 October.
Some of these stories have a reasonable basis but others are little more than informed guesses. The challenge for taxpayers is working out which is which.
One of the more interesting stories concerns the personal allowance, the amount of income an individual can receive before paying income tax. The allowance is currently £12,570 and has been frozen since 2021. Under current plans it is due to remain frozen until April 2031.
There is now a genuine reason to believe the Government is considering changing that policy. Prime Minister Andy Burnham has publicly said he was looking at the possibility of changing the personal allowance, prompting the Institute for Fiscal Studies to examine what reversing the freeze would actually mean.
That does not mean an increase will appear in the Budget. But it does mean the story has considerably more substance than some of the other Budget speculation.
The IFS calculated that if the allowance had simply kept pace with inflation since 2021 it would now be around £16,070, rather than £12,570. That is a difference of £3,500.
The frozen allowance has effectively become an increasingly important source of tax revenue because wages and other incomes can rise while the threshold remains fixed. More people therefore move into paying income tax, while existing taxpayers can gradually move into higher bands.
The IFS estimates that the number of people paying income tax in 2026–27 is about 4.9 million higher than it would have been if the allowance had not been frozen since 2021. By 2030–31, that difference could reach 6.1 million.
But giving some of that money back would not be cheap.
If the Government resumed inflation uprating of the personal allowance from April 2027, the long-term cost to the Treasury would be about £8.4 billion a year in today's terms.
There are cheaper options. The Government could increase the allowance and then freeze it again, or make a smaller one-off increase. The IFS calculates that every £100 increase in the allowance would eventually cost about £800 million a year.
There is an additional complication for Scotland.
The personal allowance is set by Westminster, so a UK Government decision would apply in Scotland. But Scotland has its own income tax rates and thresholds above the personal allowance, meaning the benefit would differ between Scottish taxpayers.
The IFS estimates that if inflation uprating resumed from 2027, the eventual annual saving for Scottish taxpayers would range from around £188 for a starter-rate taxpayer to £445 for an advanced-rate taxpayer, in today's prices.
So there is a real policy question here. The difficulty is finding the money.
The latest public finances figures have made the Chancellor's job harder rather than easier.
The Government borrowed £18.3 billion in August, £2.9 billion more than in August last year and the second-highest August figure on record. More importantly for the Budget, borrowing during the first five months of the financial year reached £77.3 billion.
That was £8.1 billion more than the Office for Budget Responsibility had expected at this stage of the year.
It is important not to confuse two different figures being reported.
The £8.8 billion figure that has attracted attention was the amount of central government debt interest paid in August. It was the highest August figure since comparable records began in 1997.
The £8.1 billion figure is different. It is the amount by which cumulative borrowing from April to August was above the OBR's forecast.
Both matter, but for different reasons.
The Government's income tax receipts are still rising. The problem is that spending is also rising, with inflation contributing to higher costs for public services and benefits. Debt interest is another substantial burden.
This is why the personal allowance story is particularly interesting.
An increase could give taxpayers some relief from fiscal drag, but it would also reduce government income at a time when the public finances are already running above the borrowing path expected by the OBR.
That does not make an increase impossible. It simply means the Chancellor would have to decide how to accommodate the cost.
And that brings us to the much larger collection of Budget rumours.
There are reports of possible changes to capital gains tax and other forms of taxation. There is speculation about pensions and savings. There are suggestions about wealth taxes and property taxation.
Some of these ideas have been discussed by economists, tax advisers or politicians. Others appear to be based largely on what commentators think the Government might do.
That distinction matters.
The fact that a tax change has been mentioned in a newspaper does not mean that it is being seriously considered by the Treasury. And even if Treasury officials are examining an option, that does not mean the Chancellor has decided to use it.
There is also a practical reason for caution.
A Budget is not prepared in isolation. The Treasury will have access to updated economic and tax forecasts, while the OBR will publish its assessment alongside the Budget. The final decisions will depend partly on the state of the economy and the amount of fiscal headroom available at the time.
The latest borrowing figures are therefore more useful than most of the speculation.
They tell us something we can actually measure.
The Government is going into the October Budget with borrowing running above the OBR's expected path, substantial debt interest costs and pressure to control spending. At the same time, the Prime Minister has talked about giving households more breathing space and has publicly acknowledged that the personal allowance is being considered.
Those facts give us a framework for understanding the rumours.
They do not tell us what will be announced.
For households, perhaps the safest approach is therefore to treat the next few weeks as a period of possibility rather than certainty.
The personal allowance is one of the more credible stories because there is a documented policy discussion behind it and the IFS has already calculated the costs.
But whether it rises, by how much, and how the Treasury would pay for it remain unknown.
The same should be applied to the growing list of other tax stories.
Until the Chancellor stands up on 28 October, most of them remain speculation.
And perhaps that is the most useful Budget story of all: not everything being reported as a possible Budget measure deserves the same weight.
The figures we already have suggest that John Healey has some difficult choices to make.
The Budget will tell us which ones he has actually chosen.