Spending Review 2025: Reeves resists putting up contractors’ taxes

Rachel Reeves didn’t put up contractors’ taxes at Spending Review 2025, but used it to say three departments will hire fewer external consultants.

The chancellor also reassured yesterday that the incoming Autumn Budget 2025 will not include tax hikes like those in her October 31st package.

Less positively for Personal Service Companies, Reeves began her speech by vowing to enrich “working people” -- a term known to exclude contractors.

The chancellor’s other ‘go-to’ came only seconds later, as she slammed “14 years of mismanagement and decline” by the Tories.

‘Choices necessary to fix our economy, in October and the spring’

“At the Budget last October and again in the spring, I made the choices necessary to fix our economy,” an unapologetic Reeves told the House of Commons.

“[The result has allowed an] increase [in] public investment by over £100billion in the autumn, and a further £13bn in the spring.”

But it is this summer that Conservative shadow chancellor Mel Stride suggested contractors should worry about.

‘Rayner handed Reeves an entire brochure of tax rises’

Responding to Reeves’ 2025 Spending Review, which increases departmental spending by 2.4% a year in real-terms, Stride said:

“We know the deputy PM has helpfully provided her with an entire brochure of tax rises that she’ll no doubt peruse over the summer.”

Still disliked by some contractors for supporting the Loan Charge, Stride was referring to a raft of revenue-raising plans by Angela Rayner MP.

‘Corbynist Catalogue’

The raft includes two changes to dividends which would dent limited company contractor take-home pay by at least £5,000 a year.

Stride denounced Rayner’s revenue-raising plans to MPs as “The Corbynist Catalogue.”

Visibly rattled, the chancellor responded to Stride (after her speech) with a seemingly unscripted admission about Autumn Statement 2025.

‘Labour will never have to repeat a Budget like the last one’

Reeves said: “There will be a Budget later this year and in that Budget, we will set out in the round all of the fiscal plans.

“But we have already drawn a line under the Tory mismanagement with tax rises last year.

“And we will never have to repeat a Budget like that again, because we will never have to clean up after the mess that the party opposite made again.”

‘Dividends already squeezed significantly’

Sarah Coles, head of personal finance at Hargreaves Lansdown, says dividends have been “squeezed significantly” in recent years.

“The rates were hiked back in April 2022, and then the tax-free allowance was slashed from £2,000 in April 2023 to just £500 today,” Coles says.

“Given how attractive the UK market is for investors seeking dividends, it would be counter-intuitive to make dividend investing less rewarding”.

Stride asked Reeves to give a “yes or no” answer to whether “she will have to come back in the autumn with more tax rises to fund” her spending plans.

‘Chancellor could extend income tax threshold freeze until 2030’

Specifically, Stride asked the chancellor to promise that income tax thresholds would not be frozen at next quarter’s Autumn Budget 2025.

In light of no such promise, Coles warned: “Reeves could, for example, extend the [income tax threshold] freeze to 2030.

“It’s politically useful, because it increases the tax take, without actually being a tax rise.”

‘Capital Gains Tax, a potential money-spinner at Autumn Budget 2025’

Hargreaves Lansdown’s head of personal finance is suspicious that Capital Gains Tax has not been raised “as a potential money-spinner”

“In part, [the lack of focus on CGT may be] because the last few years have seen so many changes,” Coles says.

“Not only was the tax-free allowance cut from £12,300 in April 2023 to just £3,000 today, but the autumn Budget also saw the rates rise for gains from stocks and shares.”

Referring to her October 31st statement, Reeves claimed that the Labour government chose not to increase taxes on “working people.”

‘People on payrolls down by 100,000, after falling 55,000 in April’

But changes to employer’s National Insurance (which the chancellor did unveil in October with effect since April 6th 2025), are hurting.

“The number of people on payrolls fell [in May] by more than 100,000, after already falling by 55,000 in April,” said Stride.

Qdos is concerned about workers who are ‘off-payroll’ despite Spending Review 2025 giving their main sector a £2bn ‘AI’ fillip.

‘IR35 off-payroll rules struggle is severe for tech sector contractors’

“The UK’s AI ambitions hinge upon the tech sector’s ability to attract the very best talent, many of whom are highly-skilled, expert contractors.

“[It is the] sector that [arguably] has struggled most with the off-payroll working rules, also known as IR35 reform.  

“Upon the roll-out of these rules, many firms chose to stop engaging contractors off-payroll completely.”

‘Blanket contractor bans remain in effect’

Qdos CEO Seb Maley continued: “Some of these ‘blanket’ contractor bans still stand today.

“So, until the tech industry truly gets to grips with these rules -- or the government rolls back on the reforms…hopes of turning the UK into a leader in this field remain exactly that -- hopes.”

‘Bringing NHS’s analogue health system into the digital age’

Spending Review 2025’s other big tech injections include a £500m digital upgrade for HMRC and a doubling in the NHS’s IT budget.

On top of a £29bn-a-year shot in the arm for the NHS, Reeves signed off £10bn to bring the “analogue health system into the digital age”.

But any benefits for contractors who provide services to the NHS via recruitment agencies risk being offset.

‘Skills-short NHS’

“It was disappointing to hear the chancellor reference the ban on zero-hours and fire & rehire practices in her speech, “ says APSCo.

“Yes, exploitation needs to be stamped out in the workforce.

“However, an unnecessarily rigid process won’t be beneficial for anyone, particularly not skills-short remits such as healthcare and the NHS.”

‘DEFRA and FCDO to mimic NHS’s limit on agency worker spend’

Before Spending Review 2025, APSCo’s Tania Bowers warned health secretary Wes Streeting that limiting agency workers across the NHS “will be damaging”.

“The detailed Spending Review document suggests that this practice [of limitation] is being extended across other government departments,” Bowers said yesterday.

“The Department for Environment, Food & Rural Affairs and the Foreign, Commonwealth & Development Office [are now] also being tasked with reducing reliance on contractors.”

‘NHS staffing crisis’

Neil Carberry, chief executive of the REC, says extra NHS funding under Spending Review 2025 won’t fix the health service’s “staffing crisis.”

“We keep getting people-policies for the NHS wrong because we do not acknowledge the choices every worker -- medical and non-medical -- has over their working life,” Carberry says.

“We have built a system where decision-making for any form of hiring into the NHS is glacially slow, and even though the costs of all other forms of hiring now outstrip on-framework agency rates, it is agencies that are called out as ‘expensive.’”

‘Treat NHS recruitment agencies as partners’

Aware of a June 2nd edict from the DoH reiterating the need for a 30% reduction in agency worker spend to save £1bn over the next five years, he added:

“The NHS needs a balanced workforce strategy.

“That means combining long-term investment in training and retention with a flexible approach to meeting immediate pressure and treating agencies as partners, rather than as peripheral players to be blamed.”

‘Spending Review 2025 says little about workforce issues’

Carberry welcomes Spending Review 2025 committing to long-term energy, technology, and green investments, as “they give firms certainty to invest behind stable government plans.”

“The missing piece of the puzzle in all this, is delivery,” continued the REC’s CEO.

“Despite talking about the need for a deep pool of talent, there was little on ‘workforce’ [in the Spending Review] – yet we know this is the critical part of getting where we need to go without further tax rises.

“And not just on skills -- where the prospect of Apprenticeship Levy reform is exciting but we await practical details.

“The upcoming Industrial Strategy is the opportunity to do this -- dealing with workforce development as an economic essential, not only an employment rights issue.”

‘Reeves showed too little understanding of Employment Rights Bill problems’

Last week, after seeing her address the CBI, Carberry said Reeves demonstrated “too little understanding of the detailed problems” that the Employment Rights Bill “threatens.”

The chancellor did not cite the ERB in Spending Review 2025 but nodded to some of its measures in her speech.

“We’re banning exploitative zero-hours contracts; we’re strengthening statutory sick pay, and ending the injustice of unscrupulous fire-and-rehire practice,” she said.

‘Labour’s one-size-fits-all approach could hurt flexible workers like contractors’

IR35 contract review expert Mr Maley, of Qdos, backs the underlying principles, but says the government needs to tread carefully.

“The chancellor [yesterday] reiterated the government’s pledge to ban zero-hour contracts.

“For vulnerable workers, who need and want greater security, this is the right thing to do.

“However, a one-size-fits-all approach could also pose a risk, especially to hundreds of thousands of flexible workers who work this way out of choice, not necessity. Careful thinking is needed here.”

‘£500m to make HMRC a digital-first organisation’

The Qdos boss sounds equally cautious about Reeves pouring £500m into HMRC, to make it a “truly digital-first organisation.”

Spending Review 2025 says HMRC will also get £1.7bn over four years to fund an additional 5,500 compliance and 2,400 debt management staff.

The government says such investment will enable HMRC to raise £7.5bn a year in extra tax by 2029-30 “to close the tax gap” and fund public services.

The Treasury says unpaid tax deprives UK public services of vital funding and puts businesses “who pay the right tax” at “a competitive disadvantage.”

‘HMRC compliance is paramount’

Qdos’s chief executive, Mr Maley reflected: “By 2029/30, at least 90% of [HMRC’s] customer interactions will be digital, serve-serve, while outbound post will be stopped.

“That’s not to say the tax office will be easing off on its compliance activity, though.

“Along with creating new efficiencies, AI is likely to play a big role in supporting HMRC’s compliance efforts -- effectively giving the tax authority more data, information and resource than ever before. As ever, compliance is paramount.”

‘Reeves, a spend now, tax later chancellor’

In his televised reaction to Spending Review 2025, Mr Stride, who called Reeves a “spend now tax later” chancellor, warned:

“It is working people and businesses who will pay the price come the autumn.”

In her speech for Spending Review 2025, Reeves said: “At the Budget last October and again in the spring, I made the choices necessary to fix the foundations of our economy. 

“We are starting to see the results. The stability we have provided has helped support four cuts in interest rates, saving hundreds of pounds a year for families with a mortgage.

“And the latest figures showed we are the fastest growing economy in the G7;  with countries lining up to do business with Britain once again, backed by new trade deals with India, the United States and with the European Union. We are renewing Britain.”

‘Too many people yet to feel the results’

The chancellor added: “But I know that too many people in too many parts of our country are yet to feel it. 

"This government’s task, my task as chancellor, and the purpose of this spending review is to change that.”