Labour is facing a challenging financial situation left behind by the previous Conservative government, leading to speculation about potential tax hikes and spending cuts under Chancellor Rachel Reeves. The upcoming Budget on November 26 will likely see discussions intensify regarding the proposed measures. One possible move being considered is extending the freeze on income tax and national insurance thresholds, which could result in millions more taxpayers entering higher tax brackets.
While experts suggest that extending the freeze could generate up to £10 billion by 2028, there are concerns about the impact on ordinary citizens, especially as the state pension is projected to surpass the tax-free personal allowance soon. Another option on the table is raising the 45% tax rate to 50%, although the exact revenue implications remain uncertain.
Additionally, there is a debate about the freeze on fuel duty, which has been maintained since 2011, with estimates suggesting that it has cost the exchequer around £130 billion. The temporary 5p cut in fuel duty, set to expire next March, poses a dilemma for the government as it balances revenue needs against potential backlash from drivers.
Discussions around implementing a wealth tax have gained momentum, with proposals for a 2% levy on assets exceeding £10 million to generate additional revenue. However, Chancellor Rachel Reeves has opposed the idea, citing a balance in the current tax system targeting high-income individuals.
Further potential changes in property taxes, such as replacing stamp duty with a new property tax on homes over £500,000 and removing the capital gains tax exemption on primary residences over £1.5 million, are under consideration. Moreover, adjustments to inheritance tax rules, including a cap on lifetime gifting and changes to taper relief, are being explored to enhance tax collection.
The banking sector could face increased scrutiny, with suggestions for a higher surcharge on bank profits to generate additional revenue for the government. Similarly, betting firms might see new taxes imposed, as former Prime Minister Gordon Brown advocates for levies on gambling giants to address child poverty issues.
In the realm of pensions, potential reforms include a levy on pension fund values to augment tax relief on contributions. The government is also reviewing customs regulations for low-value imports, contemplating changes to support domestic retailers competing with overseas counterparts.
These proposed tax adjustments and policy changes reflect the government’s efforts to address financial challenges while balancing the impact on various sectors and individuals.