As Labour grapples with a £20 billion financial deficit, Chancellor Rachel Reeves announces plans for tax hikes and cost-cutting measures to address the budgetary shortfall

Labour’s upcoming autumn Budget is set to introduce a series of tax increases, according to Chancellor Rachel Reeves. The move comes as the government confronts a substantial £20 billion shortfall in public finances, a problem Reeves attributes to the previous Conservative administration. The deficit has prompted Labour to consider various revenue-raising measures alongside recent cost-cutting initiatives.

Reeves announced that her administration will implement tax hikes as part of its strategy to address the fiscal gap. This announcement follows her recent measures to curb government spending, including the elimination of the Winter Fuel Payment for millions of pensioners and halting several infrastructure projects already in progress.

The deficit has been revealed in a recent Treasury report, which has intensified scrutiny of the current government’s financial policies. Reeves has criticized her predecessor, Jeremy Hunt, accusing him of misrepresenting the true state of the nation’s finances. Her criticism highlights ongoing tensions between the Labour administration and the former Conservative government.

Labour had previously committed to avoiding increases in National Insurance, Income Tax, or VAT, promising a more modest approach to revenue raising compared to the Conservative and Liberal Democrat parties. Instead, the party had proposed managing existing resources more efficiently and attracting private investment to support public projects. However, with the current financial shortfall, these initial plans are being reassessed.

Experts have criticized Labour’s previous spending plans as insufficient and have questioned where additional funds would come from. The Institute for Fiscal Studies (IFS) has labelled the party’s proposed spending measures as “trivial,” with former Prime Minister Boris Johnson echoing concerns about the lack of a concrete financial strategy.

As Labour prepares its budget, several key tax measures are being considered:

1. Taxing Pension Savings: Labour is contemplating a flat 30% tax relief rate on pension contributions, a shift from the current system where tax relief varies based on Income Tax rates. This change is expected to generate around £3 billion annually, impacting approximately 7 million earners. While higher earners would face a higher tax rate, basic rate earners could benefit from increased contributions. The IFS has noted that this approach would redistribute the tax burden, reducing relief for higher earners while benefiting those on lower rates.

2. Closing Inheritance Tax Loopholes: Inheritance Tax (IHT) is currently levied on estates exceeding £325,000, with a 40% tax rate applied to the value above this threshold. Despite this, various exemptions, such as business relief and tax-free transfers of agricultural land and pension pots, reduce the overall revenue from IHT. The IFS estimates that eliminating these exemptions could raise an additional £4.8 billion annually by 2029.

3. Changing Council Tax: Council Tax, which funds local authorities, is based on property values from 1991, leading to perceived unfairness as property values have increased unevenly since then. Labour had previously ruled out increasing Council Tax, but with ongoing financial pressures, adjustments to this tax could be reconsidered. Despite recent increases in Council Tax in some areas, Labour’s stance on this tax remains uncertain.

4. Raising Capital Gains Tax: Capital Gains Tax (CGT) is applied to profits from the sale of assets like property and shares. Labour is considering increasing CGT rates and adjusting tax bands to align more closely with Income Tax rates. The Liberal Democrats had proposed similar changes before the election, which could potentially raise around £5.2 billion annually.

Sky News

In the upcoming autumn budget, Labour is anticipated to introduce tax increases despite pledges to avoid raising national insurance, income tax, or VAT. Chancellor Rachel Reeves has confirmed that tax hikes are likely but has not specified which ones.

Inheritance Tax could be a target for adjustment. Currently charged at 40% on estates exceeding £325,000, potential changes include raising the rate, lowering the threshold, or eliminating certain exemptions, such as those for agricultural land and family businesses. A leaked recording suggested that inheritance tax might be used to address wealth distribution and intergenerational equality.

Capital Gains Tax is another area under consideration. This tax, which applies to profits from the sale of assets like shares and property, might see expanded coverage. Possible changes include removing the current tax-free thresholds or including assets that are currently exempt.

Council Tax might be reformed despite previous Labour commitments to leave it unchanged. The current system, based on 1991 property values, is criticized for being outdated. Proposed reforms include updating the valuation bands or shifting to a land value-based tax.

Business Rates could also be adjusted. Labour is exploring the possibility of linking business rates to land values rather than the rateable value of properties, affecting various non-domestic properties including small businesses.

Stamp Duty might see a shift from a transactional tax to an annual land value tax. This change could potentially alleviate housing market issues by encouraging movement within the housing sector.

These potential changes reflect Labour’s efforts to address budgetary needs and improve tax fairness, with details to be unveiled in the budget announcement on October 30.

The Guardian

In light of the reported £20 billion shortfall in Britain’s public finances, Mark Bill suggests several measures to address the deficit. He proposes increasing council tax on the wealthiest properties, raising an additional £1 billion each from bands F, G, and H. Other potential sources of revenue include boosting airport passenger duty, closing loopholes in capital gains and inheritance taxes, taxing unused properties and land, and imposing a tax on holiday lets. Bill also advocates for taxing profits made in the UK but offshored and recommends cuts in government borrowing costs and the nuclear decommissioning programme.

Joseph Koppenhout expresses disappointment that the £20 billion issue was not addressed during the election campaign, criticizing both major parties for their failure to engage with the problem. He views this neglect as a serious flaw in the democratic process.

David Tucker reflects on historical precedent, quoting a 1946 statement about bread rationing introduced in a time of peace and recovery. He highlights the irony and philosophical acceptance of such measures, suggesting that the current situation might also require a pragmatic and unpassionate approach from the government, particularly one keen on maintaining popular support.