Chancellor Rachel Reeves targets income tax, National Insurance, and more to boost UK coffers

After overseeing the UK’s largest-ever tax haul in October, Chancellor Rachel Reeves appears poised to ramp up further tax increases in 2025, despite widespread public dissatisfaction. With the economy still grappling with post-pandemic recovery and rising inflation, Reeves has made it clear that additional taxes will be necessary to maintain government spending levels.

Among the taxes Reeves is targeting are income tax, National Insurance, and capital gains tax. For income tax, Reeves is considering raising rates for higher earners as well as freezing thresholds, which could lead to an effective increase in tax liabilities for millions of Brits. The move is expected to generate billions in extra revenue but risks further alienating voters already struggling with cost-of-living pressures.

National Insurance, another crucial revenue stream, is also under scrutiny. With the government facing a growing healthcare burden, Reeves is eyeing adjustments to National Insurance rates, especially for high earners, which could be a double blow to those already paying increased contributions for state healthcare and pensions.

Capital gains tax is likely to see a rise as well. With more people taking advantage of the tax-free allowance, raising the rate could generate considerable sums from wealthier individuals who benefit most from this tax relief. However, any increase will undoubtedly face opposition from the business community, particularly those with significant investment portfolios.

In addition, there are discussions surrounding changes to the Individual Savings Account (ISA) system, which could see lower annual contribution limits or fewer exemptions to encourage more tax payments from those saving for retirement or other long-term goals. This move is seen as a way to increase the tax burden on the wealthiest individuals, who are more likely to benefit from tax-free savings schemes.

The government’s push for further tax increases comes in the wake of the mounting fiscal deficit and the economic strain caused by Brexit, the global energy crisis, and the ongoing recovery from the pandemic. Critics argue that the government’s failure to curb public sector spending and reform welfare systems has led to an overreliance on tax hikes.

Reeves’ critics, particularly from opposition parties, argue that these tax hikes will hurt the economy and stifle growth, especially during a period of economic instability. However, the Chancellor is adamant that these measures are essential for long-term stability, ensuring the government can continue to provide essential public services without piling up more debt.

As the next budget looms, all eyes are on whether these proposed tax rises will be enough to balance the books, or whether they will spark further discontent among the British public.

THE GUARDIAN

Rachel Reeves is facing growing concerns as the cost of UK government borrowing rises sharply. The 10-year debt yield has reached its highest point since 2008, putting the Chancellor at risk of breaching fiscal rules. The surge in borrowing costs is linked to higher inflation and central banks’ reluctance to cut interest rates as quickly as expected. Since the financial crisis, governments benefited from cheap borrowing, but inflationary pressures—exacerbated by the pandemic and the energy crisis from Russia’s war in Ukraine—are now challenging this trend, complicating fiscal management.

FINANCIAL TIMES

The UK government faces mounting pressure as its 10-year borrowing costs rise to levels not seen since the 2008 financial crisis. The surge in gilt yields, coupled with a weakening pound, has raised concerns about Chancellor Rachel Reeves’ ability to meet fiscal rules. With the government’s borrowing costs soaring, particularly amid a stagnant economy and persistent inflation, analysts warn that Reeves may be forced to announce corrective measures, such as cutting spending, in the upcoming March budget to stay on track. The situation mirrors the market instability seen during Liz Truss’s brief tenure.