With Labour facing a challenging financial situation left by the Tories and considering potential tax and spending adjustments, the upcoming Budget on November 26 has sparked intense speculation. Chancellor Rachel Reeves may need to make tough decisions on tax policies that could impact ordinary citizens.
Experts suggest one likely option is prolonging the freeze on income tax and national insurance thresholds, leading to more individuals falling into higher tax brackets by 2028/29. While Rachel Reeves has voiced concerns about the extension hurting working people, Prime Minister Keir Starmer has not ruled it out.
The Institute for Fiscal Studies projects that extending the freeze could generate up to £10 billion in revenue. However, the prospect of more taxpayers entering higher tax bands raises controversy, especially with the state pension expected to surpass the tax-free personal allowance soon. Another proposal on the table is raising the 45% tax rate to 50%.
Regarding fuel duty, which has been frozen since 2011, it currently stands at 52.95p per litre for petrol and diesel, with an additional 20% VAT. While this levy is anticipated to contribute £24.4 billion to the Treasury this year, maintaining the freeze is estimated to have cost the exchequer around £130 billion, according to the Social Market Foundation.
Speculation also surrounds potential changes to property taxes, with reports suggesting stamp duty could be replaced by a new property tax applicable to homes valued over £500,000. Additionally, discussions include eliminating the capital gains tax exemption on primary residences above £1.5 million and potentially imposing National Insurance on landlords’ rental income.
The topic of a wealth tax has gained momentum, with proposals for a 2% levy on assets exceeding £10 million to generate additional revenue for public services. Despite this, Rachel Reeves has dismissed the idea, highlighting previous government measures targeting wealthier individuals.
Furthermore, considerations for addressing pension contributions through tax relief adjustments and a proposed levy on pension fund values have emerged as potential strategies to boost government revenue. However, these measures could face challenges in implementation and may impact retirement savings.
The banking sector is also under scrutiny, with calls for increased levies on profits to support government revenue needs. Suggestions for taxing gambling firms and reviewing customs duties on low-value imports are part of the ongoing discussions about potential fiscal changes.
