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Rachel Reeves warned against tax raid But pension and charging annual fees wealth tax, As the Chancellor considers options to plug at least a £30bn black hole in the upcoming Budget.
Institute of Fiscal Studies (IFS) Warned that limiting income tax relief on pension contributions “should be avoided” and reiterated its warnings against annual wealth tax, It says savers will be penalised, or stamp duty will be increased.
Instead, he said chancellor Labor could raise tens of billions of dollars from tax reforms without breaking manifesto promises – but she urged the Budget to avoid “half-hearted solutions” to Britain’s economic problems.
It comes after reports the government is considering a tax raid on wealthy individuals to balance the accounts in the November budget, amid warnings of a black hole of between £30 and £50 billion in public finances as a result of sluggish productivity, U-turns and higher-than-expected interest payments.
In a detailed report, the IFS urged the Chancellor to resist “simply increasing rates” without making other changes to the “unfair” and “inefficient” tax system.
Among the options suggested by IFS are:
- Ending capital gains tax relief on death, which allows assets to be inherited without paying CGT on the increase in value during the deceased person’s lifetime, to raise £2.3 billion in 2029–30.
- Doubling council tax rates on the top two property bands to raise £4.4 billion
- Reform of death duties to eliminate an extra £175,000 tax-free allowance that can be used when transferring a primary residence to a direct descendant, raising almost £6 billion.
- Increases in the bank levy and bank surcharge, which together would raise a total of £2.4 billion already in 2025–26. The IFS said a one percentage point increase in the bank surcharge would lead to an increase of around £0.4bn in 2029-30.
- Tackling non-compliance to reduce the growing corporation tax gap between the amount of tax the government thinks should be paid and how much it actually collects
The think tank says it would be “possible for the Chancellor to raise tens of billions of pounds more revenue per year without breaking Labour’s manifesto promise not to increase ‘big three’ taxes” – but admitted it “will not be straightforward”.
Ms Reeves faces increasing pressure to defend Britain’s troubled financial situation In BudgetBut Labor has only limited options as a result of the pledge in the party manifesto not to raise income tax, VAT or national insurance contributions for working people.
The IFS also called for wider changes to the council tax system, arguing that banding is still based on the value of properties as of 1991 and should be updated to end the “regressive” and “difficult to justify” rate structure.
It said a “good ultimate aim” would be to replace stamp duty on housing and council tax with a “new recurring property tax in proportion to updated values”.
The report, which forms a chapter in the IFS’s comprehensive budget assessment to 2025, says, “Changing rates and caps is all very well, but unless the Chancellor is willing to pursue real reform, taxpayers will pay the price of his neglect.”
Isaac Delestre, a senior research economist at the think tank and author of the chapter, said Ms Reeves would “fall short” if she limits her ambitions for revenue without sweeping reforms.
“Almost any package of tax rises is likely to hit growth, but by tackling some of the inefficiencies and unfairness in our current tax system, the Chancellor can limit the economic damage,” he said.
“The last thing we need in November is directionless tinkering and half-baked reforms. There’s an opportunity here.
“The Chancellor should use this Budget to take real steps towards a more rational tax system that is better designed to promote the prosperity and well-being of taxpayers.”
His report came after Treasury sources said Wire The Chancellor will target people with higher incomes or greater wealth in the Budget.
But Sir Keir’s Cabinet is deeply divided on the issue, with senior ministers even more fearful Ways to target the rich The flight of money from Britain may accelerate in next month’s budget.
Cabinet ministers told last week Independent She believes Ms Reeves has already gone too far with measures targeting the rich and businesses, urging the Chancellor to change course if she has any hope of achieving growth.
He cited “anti-aspirational” measures such as abolishing non-DOM status and VAT on private school fees as key drivers of money away from the UK, saying they were “damaging this country”. Other measures reportedly being considered include a wealth tax on high-value homes and a new bank profits tax.
It is understood that officials currently believe the Office for Budget Responsibility will reduce its forecasts for productivity growth, which would mean an additional £20bn worth of tax increases would be needed.
An additional £5 billion will be needed to pay for the government’s decision to roll back welfare reforms earlier this year, while an additional £5 billion will be needed to pay for higher-than-expected interest payments.