This week, the Labour government of Britain will present its first Budget, putting an end to the prolonged uncertainty.

• On Wednesday, the U.K. government's first budget will be presented by Finance Minister Rachel Reeves, resolving the weeks of speculation regarding possible tax increases and budget reductions.
• Time and again, Labour has rejected the possibility of raising income tax, National Insurance social security contributions, value-added tax (a sales tax), and corporation tax.
• The discussion on changes to employer taxes, inheritance tax, capital gains tax, and a freeze on personal income tax thresholds is still ongoing.

The U.K. government's first budget, which has been the subject of much speculation regarding tax increases and spending reductions, will be presented by Finance Minister Rachel Reeves in London on Wednesday.

Labour's first fiscal announcement in nearly 15 years has sparked much speculation, with Prime Minister Keir Starmer warning of "painful" decisions as his administration tries to balance its pro-growth agenda with a "black hole" in the public finances.

On Thursday, Reeves provided some clarity to the narrative by confirming that she would use her budget to announce a change to the U.K.'s debt rules, which would free up billions of pounds for investment. However, she did not specify the exact nature of the investment rule change.

Reeves announced on Sky News that she will measure debt differently, but she will also put guardrails in place, as she had previously stated in the Financial Times.

The Treasury is considering targeting public sector net financial liabilities (PSNFL) instead of public sector net debt in the U.K.'s measure of debt, according to reports. The PSNFL measure provides a more comprehensive view of the government's balance sheet, including financial assets and liabilities, than public sector net debt. However, the Treasury has not yet commented on the proposals.

Goldman Sachs estimated that the changes could increase the government's fiscal headroom by approximately £50 billion ($65 billion). However, Goldman Sachs noted that the Treasury was unlikely to utilize all of the added leeway and that any increase would be phased in gradually "over several years."

According to Goldman Sachs, it is unlikely that the Chancellor will utilize the entire fiscal space and will instead maintain a larger buffer against the debt rule.

Over the next five years, Reeves anticipates that she will need to rely heavily on tax changes to close a £100 billion spending gap ($129.6 billion). Here's a look at what might change.

What changes to expect

The Labour Party has consistently stated that they will not increase income tax, National Insurance social security payments, value-added tax (VAT), or corporation tax, as this goes against their pre-election promises.

Recently, the government has shifted its narrative to avoiding tax rises for "working people," indicating that changes for higher earners and employers could be considered.

Last week, Starmer fueled speculation by stating in an interview with Sky News that individuals who own shares would not be considered working people according to his definition. The Treasury later provided clarification that it is possible for a working person to possess a small amount of shares.

The government has not ruled out the possibility of increasing National Insurance tax on employers' pension contributions, which would result in higher costs for business owners when hiring workers.

The former Conservative government introduced a freeze on personal income tax thresholds, which is often referred to as a "stealth tax" as it causes workers to pay more tax as their pay rises and pushes them into higher tax brackets. Reports suggest that Reeves may extend this policy.

The government is considering changes to inheritance tax and capital gains tax to reduce wealth disparities, but plans to impose new taxes on non-doms may be scaled back due to concerns about revenue generation and potential exodus of wealth.

Goldman Sachs predicted that the government may need to raise £25 billion annually to meet its spending goals, according to analysts who have expressed mixed opinions on the matter.

According to Investec, Chancellor Reeves aims to balance tight public finances while avoiding real term cuts in non-protected spending and increasing public investment. This will require tax increases, as stated in a note issued on Thursday.

BritishAmerican Business CEO Duncan Edwards cautioned the government against taking extreme actions that might negatively affect businesses.

On Friday, CNBC's "Squawk Box Europe" heard Edwards say that increasing taxes, which makes doing business more expensive, and raising capital gains tax, among other things, seems like an unusual way to achieve growth.

UK market jitters

Critics have accused Reeves of not closely adhering to Labour's budget during the July 4 election, which they claim has caused economic uncertainty and affected businesses.

In October, consumer confidence reached its lowest point since March, when former chancellor Jeremy Hunt presented his final budget, according to new GfK data. Additionally, business confidence fell to an 11-month low in October, as indicated by S&P Global's flash figures.

The U.K. bond yields have increased after the debt rule announcement by Chancellor Jeremy Rees, with 10-year gilt yields reaching a 16-week high of 4.24%. Despite this, analysts believe that a market meltdown similar to the one triggered by former-Prime Minister Liz Truss's "mini-budget" in September 2022 is unlikely to occur.

According to Andrzej Szczepaniak, vice president of European economics at Nomura, who spoke on CNBC's "Street Signs" on Friday, we do not believe this will be a Liz Truss moment.

"In fact, the government can now allocate investment, which is beneficial for the U.K. economy. Despite having a long-standing underinvestment issue compared to its G7 peers, this investment can help address the structural deficit."

The International Monetary Fund has recommended increasing infrastructure investment and has raised its growth outlook for the U.K. The economy is now expected to expand 1.1% in 2024, up from its earlier estimate of 0.7%.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, wrote in a note Friday that this level of endorsement to these changes would have helped contain bond market reaction and avoided a big strop-out.

— CNBC's Sam Meredith contributed to this report.