Chancellor Rachel Reeves is poised to announce a significant package of tax increases in the budget scheduled for the 26th of November, as she seeks to secure billions of pounds to mend the UK's public finances.
Major U-Turn on Income Tax
In a notable shift, the Chancellor has abandoned a plan that would have broken a key manifesto commitment: raising income tax rates. This marks the first time such a move has been considered since 1975. Instead of altering the rates themselves, the Treasury is now expected to focus on other revenue-raising measures to collect between £20bn and £30bn.
Key Revenue-Raising Options
With an income tax rate increase officially off the table, several alternative strategies are under serious consideration for the autumn budget.
Extending the Income Tax Threshold Freeze
One of the most anticipated moves is a further extension of the freeze on income tax thresholds. Initially implemented by Rishi Sunak for four years and later extended by Jeremy Hunt for another two, this policy prevents the thresholds for higher and additional tax rates from rising with inflation. Despite previously stating that a further extension would "hurt working people," Reeves is now expected to implement this measure, which is projected to raise £7.5bn a year.
Targeting High-Value Properties and Pensions
The Treasury is also exploring a controversial reform to council tax in England. A proposal to double the tax for properties in the top two bands, G and H, based on outdated 1991 valuations, could generate £4bn a year. Simultaneously, the government is looking at cutting pension tax relief by levying National Insurance Contributions on 'salary sacrifice' schemes, a move that could raise up to £4bn a year but may impact incentives for retirement saving.
Other Measures on the Table
A pay-per-mile charge for electric vehicles, costing drivers an estimated 3p per mile, is being trailed to offset falling fuel duty revenues. While initial returns would be low, this is a long-term fiscal strategy. Furthermore, taxes on gambling are likely to be increased, following a push from former Chancellor Gordon Brown and backed by several think tanks, potentially raising up to £3bn a year. Reforms to capital gains tax, including a 'settling up tax' for wealthy individuals leaving the country, could add up to £2bn a year to Treasury coffers.
The Fiscal Challenge Ahead
These potential tax changes underscore the significant challenge facing the Chancellor as she attempts to balance the need for fiscal repair against her own tight fiscal rules, adopted last year. The final decisions in the November budget will be closely watched, as they will have a profound impact on households, businesses, and the UK's economic trajectory.
