Taxes Will Increase and Reliefs Will Be Cut by Rachel Reeves in the Autumn Budget

Robert Salter, Director, commented:

There is every chance that significant tax increases and tax relief cuts will be announced in the Autumn Budget as Government expenditure is continuing to increase. But what are the Chancellor, Rachel Reeves’ options?

Fiscal Drag Likely Through Freezing Tax Allowances

It is likely that the Chancellor will freeze the personal tax allowance and tax rate bands, creating fiscal drag. Which will force people into paying tax or higher rates of tax. This could bring in significant money and does not directly go against Labour’s manifesto commitment not to increase income taxes on ‘working people’.

Income Tax Hikes for Higher Earners?

Rachel Reeves could increase the 40% and 45% income tax rates which are paid by ‘higher earners.’ This would be against their 2024 election manifesto, but increasing income tax is an effective way of growing tax revenue.

Pension Relief Under Review

Pensions tax relief allegedly costs the Government ca. £48bn per annum, making it a likely target for Rachel Reeves. While the Government won’t scrap all tax relief on pensions, the 25% tax-free lump sum amount could be restricted to a maximum of £75,000 or £100,000, with any amount in excess of this limit being taxable income.

Wealth Tax: Unlikely Despite Discussion

A wealth tax, such as a 2% tax on assets above £10m has been mentioned by a number of left-wing Labour politicians. However, wealth taxes fail in most countries that introduce them and it could encourage capital to be invested outside the UK. Making it unlikely to be introduced.

Capital Gains Tax Increases Seem Improbable

Increasing the rates of Capital Gains Tax (CGT) is another option, but the Treasury’s own figures indicate that any further increases in CGT would start to become counter-productive, and result in fewer and fewer capital sales occurring. Which would reduce the Government’s CGT receipts. This means the likelihood of a CGT increase is low.

Fuel Duty Cut Could End

The Government has provided a temporary fuel duty cut of 5p per litre since 2022. While Rachel Reeves initially extended this freeze in her first budget in October 2024, it is due to come to an end in March 2026. As removing the cut would raise ca. £2bn in additional revenue, it could easily be scrapped in the Autumn Budget.

Gifts Taxed at 20%? A Risky Proposal

Gifts could be potentially taxed at 20%. This change would make banks the ‘policemen’, as they would have to monitor their customers gift giving. However, from an optics perspective, announcing this could risk resurrecting the 2024 discourse about Keir Starmer’s gifts, and realistically it would not be easy for banks to determine what is or isn’t a gift.

Lifetime ISA Bonus May Be Cut

The Lifetime ISA (LISA) is a tax-free savings account which can have a 25% government bonus up to £1,000 a year, the money in it can be used to buy a first home or to save for retirement. The Government could remove this benefit, but it is unclear how much this would save.

VAT Rate Increase Unlikely, But Exemptions Could Be Targeted

An increase in the headline or ‘standard’ rate of VAT would be expected to raise additional tax revenues of more than £8bn, but it would be against Labour’s 2024 election manifesto. Making it unlikely that the Government will opt for this approach. Removing or reducing the scope of VAT exemptions that apply to certain types of goods or services would also have challenging optics, as many VAT reliefs apply to essentials such as food or to activities deemed to be in the public interest such as medical care.

Minor Increases in Consumption Taxes

Robert concluded:

Finally, Rachel Reeves could increase Consumption Tax on items such as beer, wine, tobacco, airline duties and insurance premiums. However, these taxes are in the greater scheme of things quite minor and raising them would not generate a substantial amount of money.

Would you like to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or Robert Salter using the form below.