As Labour aims to address a £22 billion fiscal gap, Chancellor Reeves considers several tax-raising measures while avoiding a return to austerity

As the new Labour government prepares for the Budget 2024, Chancellor Rachel Reeves faces a challenging landscape, seeking to fill a £22 billion “black hole” in public finances inherited from the previous Conservative administration. With a goal of raising £40 billion through tax increases and spending cuts, Reeves is exploring various options that may reshape the UK’s tax landscape.

Labour’s manifesto had initially outlined approximately £9 billion in tax-raising measures, with a commitment to avoid increasing taxes on “working people” through the three primary revenue sources: income tax, national insurance, and VAT. The party also pledged not to raise corporation tax on businesses, presenting a complex challenge for Reeves as she seeks to balance fiscal responsibility with political promises.

Capital Gains Tax (CGT) Adjustments
One of the most significant areas of consideration is a potential rise in capital gains tax, which currently taxes most types of gains at 20% or lower for certain assets. With £15 billion raised annually from CGT—primarily from around 350,000 taxpayers, including many high earners—Reeves could align these rates with income tax bands to generate up to £14 billion. Alternatively, targeted adjustments could yield approximately £8 billion without a complete overhaul.

Reforming Non-Dom Tax Status
Reeves is also looking to close loopholes within the non-dom tax regime, which allows wealthy foreigners to reduce their tax liability in the UK. Labour’s manifesto included measures projected to raise £5.2 billion, but recent estimates from the Office for Budget Responsibility (OBR) suggested that abolishing the non-dom status could yield around £3.2 billion annually. However, Treasury officials have expressed concerns that aggressive reforms could backfire, potentially costing the exchequer £1 billion instead.

Inheritance Tax Changes
With inheritance tax generating about £8 billion yearly, Reeves might target loopholes to increase revenue from the wealthiest estates. Suggestions from the Resolution Foundation include integrating pension pots into the taxable estate, eliminating agricultural reliefs, and scrapping the residence nil-band rate introduced in 2017. These changes could collectively raise up to £4 billion, providing a significant boost to tax revenues.

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Chancellor Rachel Reeves is facing mounting pressure ahead of the upcoming budget, which is expected to feature significant tax increases. The Times reports that she plans to raise capital gains tax for higher earners, increasing the current 20% rate by several percentage points. This move is anticipated to generate low billions in revenue. The Daily Telegraph describes Reeves’s proposals as the “biggest tax raid in history,” amidst growing unrest among Cabinet members, including Angela Rayner, who are concerned about planned cuts to unprotected departments. A Downing Street spokesperson dismissed these tensions as a standard part of the budgetary process.

In response to the projected £40bn funding gap, the Daily Express accuses Labour of fabricating a “bogus” figure to justify tax increases, suggesting that Reeves is manipulating the narrative to dictate who will benefit or suffer from budget decisions. The Daily Mail warns that raising national insurance could be “Labour’s poll tax,” with the Institute of Directors calling the proposal harmful to jobs and wages.

In a separate development, counter-terrorism police are investigating an incendiary device discovered in a parcel at a DHL warehouse in Birmingham. Authorities suspect potential links to Russian operatives and similar incidents in Germany.

In sports news, Thomas Tuchel has been appointed as the new manager of the England men’s football team. The Sun portrays him as the “ruthless” leader needed to end “60 years of hurt” for fans, while the Daily Mirror argues that success should define his legacy, suggesting that he could become an English hero if he leads the team to World Cup victory.

As the government navigates fiscal challenges, public safety concerns, and sporting aspirations, the upcoming budget is poised to significantly influence its trajectory.

THE TELEGRAPH

As the anticipated Budget approaches, the focus has shifted to the difficult choices Rachel Reeves must make regarding spending cuts and tax increases. The Chancellor appears cornered, as she grapples with balancing the need for revenue while attempting to adhere to Labour’s manifesto commitments. This predicament is exacerbated by a brewing discontent among Cabinet ministers, including Angela Rayner, who are alarmed by proposed cuts to their departments.

Ministers from housing, transport, and justice are reportedly voicing concerns about the scale of cuts, questioning how the government can simultaneously vow to avoid a return to “Tory austerity” while imposing further reductions on already strained departments. This contradiction presents poor optics for the Labour government, which has pledged to prioritize public services.

Reeves’s adherence to the “golden rule,” which mandates that the current budget should be balanced with tax revenues rather than borrowing, places additional pressure on her fiscal plans. As the government seeks to avoid austerity rhetoric while still managing a budget deficit, the potential for damaging cuts looms large. The Chancellor may find herself in the unique position of being the only economist arguing that raising employer National Insurance contributions doesn’t constitute a tax increase for working people, despite her previous acknowledgments.

Ultimately, it seems that the real challenge lies not just in how much revenue can be raised through taxes, but in how the government will navigate the necessary spending cuts that could undermine public services and challenge its credibility. The question now is not whether cuts will occur, but where they will fall.