The Autumn Budget is approaching and Chancellor Rachel Reeves has warned of difficult decisions on tax, spending and pensions.
Reeves used one of her first parliamentary speeches as chancellor in July to highlight a “£22 billion hole in public finances” inherited from the Tory government before Labour came to power at the general election.
To plug this shortfall, Prime Minister Keir Starmer has already warned that those with the broadest shoulders “should bear the heavier burden”, said MoneyWeek, “suggesting that we could see tax hikes in the Budget”.
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There have already been some cuts, with winter fuel payments limited to those claiming pension credit, but reported The Times Money Mentor, “some big surprises” could also be enacted.
Tax rises
Starmer has warned Britain to “prepare for tax rises“, said ThisIsMoney, but he has ruled out raising income tax, national insurance and VAT, “making it harder to balance Britain’s books”.
This means “rumours are rife” that there could be changes to capital gains tax (CGT) or pension tax relief, said The Telegraph, which the government has “so far refused to rule out”.
Increasing CGT rates – the amount of tax you pay when selling an investment or property – would “chime with Labour’s mission to make the rich pay more”, reported Morningstar.
One possibility is bringing CGT rates in line with higher income tax charges, said Charles Stanley. However, such a plan may backfire if “more people decide to sit on their hands rather than sell”.
Inheritance tax is one of the taxes “most likely to be changed”, said Sky News. It is currently charged at 40% on the value of any assets above £325,000 when someone dies.
The rate could be increased, the news broadcaster added, or the threshold “lowered to raise money”.
Reeves could also change the “various rules” around gifts and exemptions for inheritance planning, said Fidelity, which could be sold as a “tidying up of what can seem complicated rules”.
The government has already launched a pension review looking at “scaling up” workplace schemes, said The Times Money Mentor.
But the Budget may go further, added the financial website, with changes to pension tax relief or the 25% tax-free lump sum that can be taken from retirement pots.
Currently, higher rate taxpayers get 40% tax relief on pension contributions but halving this to the basic 20% rate could raise a “tantalising sum” of up to £15 billion, according to the Institute for Fiscal Studies.
This would, however, result in a “less coherent tax system”, reported the think tank, “with a strong disincentive to contribute”.
Rumours of changes to the 25% tax-free lump sum that can be withdrawn from a pension have already caused an increase in people contacting financial planners to help access their money, said the i newspaper, “amid worries of a potential tax raid”.
The chancellor may consider an “anomaly” in the inheritance tax system that lets people inherit a pension tax-free, said consultancy LCP, but it is expected to raise “relatively little revenue”.
Benefit changes
Labour has promised “no more austerity“, said the Daily Mirror, but has already announced changes to winter fuel payments and scrapped plans to cap social care costs. The government is also “yet to rule out” previous Tory government proposals to replace the personal independence payments benefit with vouchers and one-off grants.
Reeves is understood to be “eyeing up” changes to the welfare budget by helping more people get back to work, reported the i Paper.
This would “lower the bill” for income-related sickness benefits and the unemployment element of universal credit, added the newspaper’s website.
But this must not be used as an “excuse for slashing vital financial support” for seriously ill and disabled people, Ayla Ozmen, director of policy and campaigns at anti-poverty charity Z2K, told the Big Issue, especially when the evidence shows that “such cuts do nothing to help people enter work”.