Spending Review 2025: Reeves Promises Stability, But Questions Linger Over Taxes and Contractors

No Tax Rises — But Fewer Contractors to Be Used

Chancellor Rachel Reeves refrained from raising taxes on contractors in her 2025 Spending Review. Instead, she signaled a shift in departmental operations, announcing that three government departments will reduce their reliance on external consultants.

In what was positioned as a signal of economic stability, Reeves also indicated that the upcoming Autumn Budget 2025 would not follow the pattern of sweeping tax hikes seen in her previous fiscal package on October 31st.

A Speech for “Working People”—But Not Contractors

Opening her address, Reeves emphasized her government’s mission to support “working people,” a term that typically excludes self-employed contractors. Within seconds, she turned to criticize what she described as “14 years of mismanagement and decline” under the Conservative government.

Investing for Growth: “Choices Made in October and Spring”

In a bid to highlight her fiscal credentials, Reeves told MPs that her previous budgets laid the groundwork for economic repair. “The decisions I made in October and this spring,” she declared, “have enabled over £100 billion in public investment in the autumn, with an additional £13 billion allocated this spring.”

Opposition Warns of Summer Tax Planning

Shadow Chancellor Mel Stride responded by cautioning that tax rises may still be on the horizon. He claimed that Reeves has access to “an entire brochure of tax increases” courtesy of Deputy PM Angela Rayner, which she could consider over the summer months.

Stride’s reference alluded to Labour’s revenue-raising proposals, some of which have drawn criticism for their potential impact on limited company contractors.

Dividend Changes Raise Contractor Concerns

Among the most contentious ideas is a plan to alter dividend taxation, which would reportedly slash contractor take-home pay by upwards of £5,000 annually. Stride dubbed the proposals “The Corbynist Catalogue,” suggesting they lean heavily on ideological rather than practical grounds.

No Repeat of Last Year’s Tax-Heavy Budget, Reeves Claims

In a rebuttal following her main speech, Reeves stated that Labour would not repeat last year’s tax-heavy budget. “We’ve already dealt with the consequences of Tory mismanagement,” she said, adding, “We won’t need to clean up their mess again.”

Dividends Already Under Pressure

Sarah Coles of Hargreaves Lansdown pointed out that dividends have already been “significantly squeezed” in recent years. The allowance was slashed from £2,000 to £500, and rates were increased in 2022. She warned that further curbs would discourage investment in the UK market.

Autumn Budget May Bring Extended Tax Threshold Freeze

Stride pressed Reeves for a firm “yes or no” on whether tax thresholds would remain frozen in the upcoming Budget. Reeves offered no such guarantee. Coles suggested an extension of the freeze to 2030 could be used as a stealthy way to increase tax revenues.

Capital Gains Tax Under the Microscope

Coles also raised concerns over potential changes to Capital Gains Tax (CGT). While no changes were announced, she noted that recent cuts to the CGT allowance and rising rates for investment gains may indicate future increases.

Falling Payroll Numbers Raise Concerns

Despite avoiding new tax hikes, the government’s National Insurance changes—effective since April—have contributed to declining employment numbers. Payroll figures dropped by 100,000 in May, following a 55,000 drop in April, prompting criticism from the opposition.

Tech Sector Hit Hard by Off-Payroll Rules

Contractor advocacy group Qdos noted that the UK’s ambitions in AI are at odds with IR35 off-payroll rules, which have discouraged firms from engaging specialist contractors. The tech industry, they argue, continues to suffer from blanket bans introduced during IR35 reform.

Restrictions on Contractors Still in Place

Qdos CEO Seb Maley warned that these restrictions remain widespread.

“Unless government rethinks IR35, the UK risks missing out on becoming a tech leader,” he cautioned.

£10bn to Digitise the NHS—But Will Contractors Benefit?

The Spending Review allocated £10 billion to modernise the NHS, alongside a separate £500 million investment in HMRC's digital infrastructure. However, APSCo raised concerns that contractors, particularly those in healthcare, may not benefit due to growing regulatory burdens.

Agency Limits May Spread Beyond the NHS

APSCo’s Tania Bowers warned that constraints on agency spending are expanding. The Department for Environment, Food & Rural Affairs and the Foreign Office are now also expected to reduce contractor use, mirroring NHS cost-control measures.

NHS Staffing Challenges Persist Despite Funding

Neil Carberry of the Recruitment and Employment Confederation (REC) welcomed the funding boost but criticized the slow pace of NHS hiring. “Agencies are not the problem,” he said, “but they continue to be treated as if they are.”

Call for Balanced Recruitment Strategy

Referencing a recent Department of Health directive to cut agency spend by 30%, Carberry urged government to treat agencies as essential partners in workforce strategy, especially for short-term staffing gaps.

Workforce Strategy Gaps in the Spending Review

Carberry also highlighted that despite commitments to energy and technology investments, the Spending Review said little about workforce development. He stressed that talent strategy is central to economic success and awaits detail on Apprenticeship Levy reform.

Employment Rights Bill Needs More Thought, Say Experts

The Employment Rights Bill was not directly mentioned but was alluded to in Reeves’s pledge to ban zero-hours contracts and fire-and-rehire practices. Critics say these policies, while well-intentioned, risk undermining flexibility for those who choose non-traditional work.

Zero-Hours Ban Could Unintentionally Harm Contractors

Qdos’s Maley urged caution. “For vulnerable workers, this policy offers needed security,” he acknowledged. “But for flexible professionals who work this way by choice, it could be damaging. One-size-fits-all isn’t the answer.”

Digital Transformation for HMRC Comes with Strings

The chancellor also pledged £500 million to transform HMRC into a “digital-first organisation.” The department will gain 7,900 new staff and aims to recoup £7.5 billion annually by 2030 through better compliance and debt collection.

Compliance and AI at the Heart of HMRC’s Overhaul

According to Qdos, AI and automation will likely enhance HMRC’s compliance capabilities. “While efficiency will improve, contractors should expect scrutiny to increase as well,” said Maley. “Compliance remains paramount.”

Critics: Reeves Is Delaying the Real Tax Bill

In his televised response, Stride labeled Reeves a “spend now, tax later” chancellor. He warned that although tax hikes may be postponed, they’re not off the table. “Ultimately, working people and businesses will foot the bill.”

Reeves: Foundation Is Set, Growth Has Returned

Closing her speech, Reeves cited interest rate cuts, economic growth, and new trade deals as signs of success. “We are renewing Britain,” she said, pointing to the UK’s position as the fastest-growing economy in the G7.

But Many Still Feel Left Behind

Despite the upbeat tone, Reeves acknowledged that progress has yet to reach many parts of the country. “This spending review is about making sure that changes,” she concluded. “We must deliver not just stability, but shared prosperity.”