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Chancellor Rachel Reeves has warned her first Budget will involve “difficult decisions” on tax, spending and benefits.
Shortly after Labor took power, Reeves said the government would have to raise taxes to plug what he claimed was a £22 billion “hole” in the public finances.
Earlier this month, government sources said the chancellor was considering tax rises and spending cuts worth £40 billion in the Budget, which takes place on October 30 .
Labor has ruled out raising taxes on “workers”, including VAT (value added tax), income tax and national insurance.
So, what taxes could increase?
1. A “stealth tax”
One option, however, is what has been dubbed a stealth tax – a means of raising revenue that is not explicitly characterized or intended as a tax.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), says the most obvious solution would be to focus on tax thresholds, that is, the amount of money you can earn before until a tax begins to be paid.
Currently, income tax and national insurance thresholds are frozen until 2028, a policy introduced by the previous government. The chancellor is now said to be considering a plan to maintain the freeze beyond this limit.
This policy amounts to an increase in taxes due to a process called “fiscal drag”, which sees more people “driving” into paying higher tax rates as their salaries rise.
The Resolution Foundation, a think tank which aims to improve the living standards of low and middle income families, estimates that the current freeze will generate around £40 billion in income by 2028.
Reports suggest extending the freeze could raise an extra £7 billion a year.
2. Employer national insurance contributions
Although Labour's election manifesto ruled out increasing National Insurance (NI), it appears increasingly likely that social insurance payments made by businesses will increase.
The Chancellor has hinted that employers will face higher NI contributions, and Prime Minister Sir Keir Starmer has also not ruled out an increase in contributions.
Employers pay NI at the rate of 13.8% on all employee earnings above £175 per week, but pension contributions made by employers are currently exempt from this levy.
Treasury officials are reportedly exploring NI on employer pension contributions to boost revenues.
Businesses have decried a potential change, arguing it would make it harder to recruit staff and create jobs.
3. Inheritance taxes
The government is considering changing inheritance tax to raise more money, according to the BBC.
It’s not clear how many people are likely to pay more, or how much more they would pay.
The Prime Minister and Chancellor are understood to be considering multiple changes to the tax, which currently includes several exemptions and reliefs.
Inheritance tax, currently paid at a rate of 40%, is levied on the portion of a deceased person's estate above a threshold of £325,000.
But this only applies to less than one in 20 domains.
No tax is paid if the estate is valued at less than £325,000, or if anything above this threshold is left to a husband or wife, civil partner, charity or community amateur sports club .
And if a house is part of the estate and a person's children and grandchildren will inherit it, the threshold can be up to £500,000.
Reeves could increase the inheritance tax rate or reduce the relief available on certain inherited assets.
Current exemptions and reliefs include rules regarding gifts given during your lifetime. Gifts made less than seven years before your death may be taxed.
Other exemptions include farmland and retirement savings, both of which can be inherited tax-free.
There are also provisions for unlisted shares, which are shares of a company not listed on a stock exchange.
4. Capital gains tax
Another route Reeves could take would be to impose capital gains tax (CGT).
This is charged against the profit made on the sale of an asset which has increased in value, with some examples including shares which are not held in ISAs or second homes.
CGT is payable by individuals, but also by independent sole traders, partners in business partnerships and business owners, among others.
It starts at a rate of 10% (or 18% on residential properties) on profits over £3,000. It then rises to 20% on any amount above the base rate, or 24% on residential real estate.
Critics point out that CGT rates are significantly lower than income tax rates. They say this may benefit wealthier people and that Reeves could choose to level the playing field or reduce some CGT tax breaks for businesses.
There has been speculation that the rate could be increased in the budget, although the Prime Minister appeared to reject suggestions that it could rise to 39%.
Industry groups have warned that an increase in CGT could harm those at the center of Labor's plans for economic growth.
“No growth-minded government would increase CGT for entrepreneurs selling a small business,” Tina McKenzie of the Federation of Small Businesses (FSB) told the BBC.
5. Fuel tax
Fuel tax is a tax levied on purchases of gasoline, diesel and other fuels. Its level should impact what drivers pay at the pump.
The levy is a “significant source” of revenue for the government, according to the Office for Budget Responsibility, with £24.7 billion expected to have been collected in 2023-24.
But fuel taxes have not been increased in more than a decade. Between 2012 and 2022, it was frozen at the same level.
In March 2022, the then Conservative chancellor, Rishi Sunak, cut it by 5p per liter after Russia's invasion of Ukraine led to record pump prices.
However, some car groups have argued that this reduction – which is due to end in March next year – has not been passed on to drivers.
This prompted the RAC to suggest the cut should be removed by Reeves in the budget, and the Prime Minister did not rule out an increase in fuel duty in the budget.
Simon Williams, head of policy at the RAC, said the automotive group had come to the conclusion that the chancellor “had no choice but to increase fuel duty”.
Reeves “knows that the 5p cut is costing the Treasury £2bn a year”, he said.
6. Reduce pension tax relief
When individuals or their employers contribute to private pension funds, they benefit from tax relief on these contributions, up to set limits.
The relief allows some of a person's income that may have been taken by the government as tax to be put into their retirement savings.
Under the current system, savers receive tax relief at the same rate as their income tax, meaning basic rate taxpayers get 20% relief and higher rate taxpayers get 40% relief. % or 45%.
In the run-up to big political events like the Budget, Tom Selby, director of public policy at AJ Bell, says there is often speculation that a flat rate of pension tax relief could be introduced, even if Reports suggest this is now a solution. an improbable gesture.
A change would mean the system would be less generous to high earners, but the IFS suggested it could raise “billions” for the government.
Some opponents, however, said it could discourage people from saving for the future and could be difficult to implement.
