Rachel Reeves may raise taxes after skipping income tax hike

Reportedly increased income tax rejected By Rachel Reeves The last-minute change ahead of the Budget comes amid fears breaking Labour’s manifesto pledge could anger voters and backbench Labor MPs.

Chancellor attended pave the way for significant tax increases In a major pre-Budget speech earlier this month, as he put it, “easy answers” ​​were off the table.

it is The strongest warning ever from the ChancellorWhich has been indicating for the last few months that difficult choices will have to be made.

But financial Times told that he is now Abandoned the plan to increase income taxWhich was informed to the Office of Budget Responsibility (OBR) on Wednesday. While an income tax increase would help bridge the fiscal black hole, it would break the party’s promise not to raise income tax, national insurance or VAT.

Many economists predict that huge tax increase There is hope in the budget as Ms Reeves seeks to counter the country’s poor economic performance.

Researchers at the Institute for Fiscal Studies (IFS) have found that chancellor At least £22 billion will need to be found to bridge the gap in the government’s finances, as rising borrowing costs and weak growth forecasts have significantly reduced its room for manoeuvre.

Speaking from Downing Street in early November, Ms Reeves said: “Politicians in recent years have become accustomed to spending money on short-term sticking-plaster solutions rather than making long-term economic plans.”

Adding to the speculation is No 10’s seeming reluctance to commit LaborThe manifesto promises not to raise the main rates of VAT or national insurance contributions.

With income tax as the two other largest sources of revenue, economists have pointed out that the decision limited the Chancellor’s options. His recent comments may indicate an intention to at least partially withdraw from the commitment, in light of difficult economic conditions.

Here are some other options chancellor Consideration may take place before the budget on November 26:

change in vat

Labour’s passive language on its tax commitment has led to some speculation that the Chancellor is considering some form of increase in VAT.

It is unlikely the Chancellor will raise the main rate of VAT, which is currently charged at 20 per cent on most products and services. The levy is generally passed on to customers, and given recent warnings over living standards and inflation, it will mean more hardship for already struggling families.

The Chancellor could take a different approach – arguably still in line with Labour’s commitments – by making the VAT rate flat.

Food is one of the more complex areas to tax, with products such as confectionery, hot meals and ice cream attracting standard VAT, while meat, vegetables and juices do not.

This was a measure recently supported by the Institute Government (IFG), which pointed to a case still in progress where a tribunal found that giant marshmallows should not be liable to standard VAT because, because they are unlikely to be “normally eaten with the fingers”, they should not be considered confectionery.

Changes were made in stamp duty and council tax

An ambitious plan is reportedly being considered to replace both stamp duty and council tax with two new “land taxes” that could arguably be more equitable.

Stamp duty will be replaced by a “national” land tax – a new levy on the sale of a property when its price exceeds £500,000. This levy will be proportionate to the value of the property and will be paid at a rate set by HMRC.

This will only be payable by the new owner of the property on amounts over £500,000.

The second part of the plan would see council tax replaced by a new “local” property tax. This will be calculated relative to the property value paid by the owner and at a rate set by each local authority.

The report on which the plans are reportedly based argues that the tax should be imposed on values ​​up to a limit of £500,000. This will ensure that the richest areas are not able to set much lower rates than areas with less valuable properties.

It would address a major criticism of the council tax system – that how properties are valued is unfair and inaccurate. The “bands” of council tax paid by all properties are based on values ​​last assessed in the 1990s, which are significantly out of date in many places.

The local property tax concept would instead involve a tax on properties based on their value at the last point they were sold, meaning assessments would be updated regularly.

mansion tax

In the UK, capital gains tax is payable on the sale of most high-value assets. This includes property, stocks and assets worth more than £6,000.

Under current rules, a homeowner generally is not required to pay capital gains taxes on the sale of a property that has been their primary residence during their ownership.

Under proposed plans this would change if the property value of the home being sold is £1.5 million or more, although this limit is being considered.

The way capital gains tax works on property sales requires sellers to calculate the “gain” they made on the property. This is usually the difference between what they paid for the property and what they sold it for.

If it is above, or goes above, the seller’s capital gains tax allowance – £3,000 per year – they will have to report and pay tax on.

For higher or additional rate income taxpayers, the rate is 24 percent. For those with the basic rate, it is 18 percent.

A more simple version of the “mansion tax” has also been brought closer to the budget. It would see a levy imposed on owners of properties worth at least £2m, charging an annual fee of 1 per cent of the amount over that threshold – meaning a charge of £10,000 a year for homes worth £3m.

change in pension tax

Another step Ms Reeves could take is to change pension policy, aimed at pulling some money away from wealthy retirees.

LCP analysts, including former pensions minister Steve Webb, have warned against the move and shared their views on how the Chancellor might seek to overhaul pensions.

One of the most widely anticipated is a cut to higher rates of pension tax relief. This is a policy that effectively increases savers’ contributions with a top-up from HMRC.

Savers paying basic rate tax get a 20 per cent boost to their pension contributions, while higher rate taxpayers get 40 per cent and additional rate earners get 45 per cent.

The scheme effectively ensures that no tax is paid on pension contributions. It is designed to encourage people to save more for retirement, because income that would be taxed as a salary may actually be tax-free as pension deposits.

The rumored proposal would see this relief cut for high earners, meaning everyone would get pension tax relief at a flat rate of 20 per cent, regardless of their income tax bracket.

An IFS report last year found it would bring £15 billion more to the Exchequer a year, “the bulk of which will come from those in the top fifth of earners”.