Rob Anderson, Reseach Director, analyses the implications of the latest Autumn Budget for the capital.

The dust has started to settle on this year’s Autumn Budget and, for this ex-Treasury policy geek at least, it’s been a weird – and ultimately disappointing – one.

A long and noisy run-up…

Normally, the Autumn Budget is a fairly contained affair. It happens in October or November, on a Wednesday, just after PMQs, and comprises a big speech and an even bigger document where all the grisly details are found.

Some speculation, and ‘leaks’ to the news, ahead of a fiscal event is a routine aspect of budget prep. This year saw a dizzying array of measures leaked in advance – only some of which made it into the final document. The cherry on the cake saw the major details of the Budget published by the OBR almost an hour before the Chancellor made it into the despatch box to start her speech.

This prolonged fiscal back-and-forth is important for two reasons. Firstly, the general impression is of a Government that lacks a strong diagnosis of the economy, or sense of what it wants to achieve. Secondly, it has generated widespread rumours and damaging uncertainty. Examples of this are plentiful. The property market was rattled by rumours of sweeping reforms to property taxes. Households braced for trailed changes to the basic rate of income tax. Londoners – from business owners and investors, to families relying on benefits – have all been subject to a rolling cascade of briefings, deferred decision-making and, consequently, a reduction in confidence.

… with an ultimately disappointing outcome.

And after all that, what was announced was a couple of big headline moves –  the most substantial being an extension to the freeze in income tax thresholds, raising £8 billion by 2030-31 and the abolition of the two-child benefit limit, costing  2.3bn in 2026-27 and £3bn in 2029-30 – underpinned by a messy patchwork of incremental measures.

Breaking it down, here’s what the budget means for London:

First of all, the big stuff:

Extending the freeze of the income tax threshold to 2030 will hurt a lot of Londoners. Tens of thousands of low-earning Londoners will start paying tax. And, thanks to London’s higher cost of living and higher salaries, tens of thousands more will move into the higher 40% band. There’s a misconception that Londoners can afford this uplift. Renters are shelling out 32% of their disposable income on housing. Meanwhile, bills, travel, and groceries eat further into monthly pay checks. This change will mean an average earner in London will be paying the higher rate of income tax. With living costs as high as they are, this rise in the tax take for working Londoners will squeeze poorer households hard, reduce consumer spending – which will hurt businesses – and impact livelihoods across the capital.

But, this will help pay for the abolition of the two-child benefit limit – a real lifeline for many of London’s children. As of April 2025, our analysis shows 72,640 London households are affected by the Two Child Limit, the highest number of any region and 17% of the national total – this equates to 93,100 children. Abolishing the two-child limit is the most efficient way of lifting families out of poverty, and will have a major impact.

However, it is not a silver bullet. Again, London’s high cost of living means some households living in poverty will still see their benefits limited by the overall benefit cap, even after the two-child limit is abolished. Indeed, there are currently 5,310 households affected by the two-child limit who are already benefit capped. As such, of the 72,640 households affected by this policy, the maximum number of households who could benefit from the abolition is 65,950. The reality is the additional benefits for those families will bring some of them up to the benefit cap, reducing the overall impact.

Secondly, there were no measures to address the primary driver of poverty in London – housing costs. Local Housing Allowance remains frozen, and only sufficiently covers the rent in less than 5% of London rental properties.

Next up, the ‘London’ bits of the budget

It’s great to see some of London’s key ‘asks’ – a tourism tax and the DLR extension – being listened to. But, they’re small steps forward in areas which require dramatic and ambitious change. This time last year, I wrote about how disappointing it was to see the Government overlook London entirely. We saw the pattern repeat itself at the Spending Review in June, where London stakeholders were surprised – and more than a little incensed – to see none of London’s key investment needs met.

That’s why it’s a relief to see the Government confirm support for the extension of the Docklands Light Railway to Thamesmead, which could unlock 25,000 new homes and create 10,000 new jobs.

However, in the grand scheme of London’s infrastructure investment needs, the DLR extension is a minuscule investment, equating to about 2% of the investment that was required for the Elizabeth line. And we saw no mention of the other critical infrastructure investments London needs (e.g. Bakerloo Line extension; West London Orbital; Crossrail 2).

What’s more, the Government itself isn’t funding the DLR, but instead will allow the GLA and TfL to raise the revenue regionally. This is a good thing – we at Centre for London have long been advocates of fiscal devolution to enable London to invest in and deliver what the city needs. Yet, the fact that the Government itself will not be supporting the infrastructure London sorely needs, reinforces the sense that the Government isn’t willing to back the capital on investment and infrastructure.

Similarly, the announcement that the Mayor will be allowed to introduce a tourism levy is a step in the right direction – but again, this is a weak measure given the opportunities that real fiscal devolution would present.

London is an outlier amongst its global peers on all things tax and spend. But the notable lack of powers to raise revenue from tourism was increasingly at odds with London’s status as a world-leading tourist destination. Centre for London has long-called for a tourism levy, to allow the city to reinvest in its infrastructure, most recently in our report on London’s world-class arts and cultural sector.

The big question now is how the new levy will be implemented – and particularly how the proceeds will be distributed across the city. Boroughs who see the highest numbers of tourists – such as Westminster and Kensington and Chelsea – will argue for the lion’s share to flow to them, while others may argue that spreading the proceeds will help the destination economy in the wider city. At Centre for London, we hope to see this devolved to the Mayor and distributed where need is greatest across the capital.

Finally, the catchily-named High Value Council Tax Surcharge (or ‘Mansion Tax’) is a reasonable (if clumsy and poorly designed) measure – but it represents a painful missed opportunity for real reform. As this analysis by ex-CfLer Richard Brown suggests, the new surcharge will disproportionately affect London. Initial industry responses suggests it shouldn’t have too much of a disruptive effect on London’s already-cooling prime property market, and it will raise a bit of money (£400m is the Treasury’s estimate) for central government.

But the main point here is that this crude, flat-rate on the most expensive properties is a frustrating missed opportunity to reform a deeply dysfunctional property tax system. It is unfair, regressive and actively making London’s housing crisis worse.

Under the current system, stamp duty adds tens of thousands onto the cost of buying an average-priced home for first time buyers in London. And it puts a price tag on moving – stopping people downsizing, even if their home isn’t right for them anymore, and preventing much-needed larger homes becoming available for the many London families in need.

Meanwhile, Council Tax is deeply unfair – a regressive system based on property values that haven’t been updated since 1991. It hits those in lower-value, smaller homes much harder than those in expensive and larger properties, even with the addition of this new surcharge.

It’s therefore very disappointing to see the Chancellor decide to go with such a clumsy measure, to raise fairly small sums when it was briefed earlier in the year that more root-and-branch reform was being considered. Also, can it really be called a Council Tax if the proceeds are going straight to central government?

As our upcoming research project, Delivering the Homes London Needs will explore, a well-designed proportional property tax could be transformative for London. It would be fairer, ensuring people living in the largest and most valuable homes pay more, while those living in smaller and less valuable homes pay less, remove the ‘tax on moving’ that Stamp Duty creates, and could generate revenue to build the affordable homes that London needs.

Given these disappointments, on top of last year’s painful increases to employer National Insurance contributions, it was good to see a few positive steps taken for London’s businesses. Key measures included the expansion of the Enterprise Management Incentive scheme, allowing more small and medium-sized companies to retain and incentivise staff by offering tax-advantaged share options to employees, and reforms to schemes that can support businesses to scale up, including the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs).

The Government also introduced a three-year stamp duty exemption for companies listing on UK stock exchanges, aiming to make London a more attractive destination for public offerings – this is welcome news for the troubled London Stock Exchange which has seen listings fall substantially in recent years.

However, it’s not all good news here either – similarly to last year’s N.I. increases, smaller employers in London’s foundational hospitality and retail sectors are likely to be concerned by increases to the National Living Wage and changes to salary sacrifice pension rules, all of which will continue to squeeze margins.

And a step backwards:

There were also some things in the Budget that set us back. Despite the successes of ULEZ and congestion charging in cleaning up London’s air, 4,000 Londoners are estimated to die early every year due to air pollution. It’s disappointing, therefore, to see our cleaner cars slapped with a new electric vehicle pay-per-mile tax, while the never-ending fuel duty freeze and newer 5p per litre cut were extended.

London is a world-leader in its ambition to reach net zero by 2030 and has halved emissions since 1990 – it’s a shame to see the Government pulling in the other direction, subsidising fossil fuel use and introducing a new tax on electric vehicles.

As ever, what was missing from this year Autumn Budget for London?

Finally, Rachel Reeves didn’t even mention some of the biggest challenges facing both the UK and London – namely the local government finance crisis and the ongoing housing and homelessness emergency.

London’s local authorities face a £4bn funding gap over the coming years. This Budget was the last chance in this Parliament to match the Government’s local government reorganisation and devolution programme with a much-needed overhaul of how local government is funded – and the only major measure we saw was a ‘Council Tax’ that isn’t going to councils. And our increasingly out-of-control homelessness crisis, which is now seeing London local authorities spend upwards of £5m a day on temporary accommodation, wasn’t even mentioned.

That said, one change that will be giving local government finance officers a rare sigh of relief is a quiet, but very sizeable, measure which saw the responsibility for SEND spending shift from councils to the Department for Education. The OBR has estimated that the SEND bill is set to cost around £6 billion in 2028-29, rising to £9 billion by 2030-31. This is good to out of council budgets, some local authorities facing significant deficits due to spiralling SEND costs alone – but ultimately just shunts the bill to another part of Government, potentially with knock-on effects on wider education spending.

Conclusion

 So, overall the budget tinkers around the edges of our biggest challenges, the ambition falling short of what’s needed across London and the wider UK.

It isn’t news to Londoners, or to the rest of the UK, that as a capital and a country we have some big problems. Stagnating productivity, crumbling infrastructure, low investment, and falling living standards are problems which are felt across the country.

Everyone, from businesses, to UK residents, to the government itself, needed this budget to at least start to turn things around – and it fell a long way short.