Despite the title's inference, I intend to refrain from entering into detailed speculation about what Rachel Reves might or might not do in her first budget on 30 October. Instead, I simply want to look at her options if we take the Labour Party’s election manifesto pledges on tax at face value.
How much room for manoeuvre does Rachel Reeves have if these pledges are honoured?
Here’s how UK tax receipts looked in 2023/24 – about a trillion pounds in total, according to the latest ONS data:
Reeves has said she will not increase the big four — Income Tax, National Insurance VAT, and Corporation Tax — so what options are left?
It will be hard to find £20bn there – particularly when it’s dominated by Council Tax and Fuel Duty, which are politically challenging to increase.
I think a reform of Council Tax in some form has been well reported, but aside from that, increases in Capital Gains Tax (CGT) and Inheritance Tax (IHT), the most likely targets for a left-leaning administration, will need to be substantial if a meaningful amount of money for public services is to be raised. But, how would a significant increase in CGT fit in with Labour’s stated aim of driving growth? Penalising entrepreneurship does not seem a sensible way to go.
Labour could introduce brand new taxes of course, a Wealth Tax for example, but I think most experts are of the view this would be very difficult to implement and administer in such a short period of time.
Looking at the first chart, it’s obvious that Income Tax, NI, and VAT are the most significant contributors to the public coffers, and it seems to me that, sooner or later, someone will have to make changes there. I remember when I first started work, on a very modest salary, I might add, that the basic rate of Income Tax was 33%!
We won’t have long to wait to see what the new tax landscape will look like; 30th October will be upon us before we know it.
I hope you found the above interesting. As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
