Chancellor to opt for alternative tax changes amid concerns over political backlash
Keir Starmer and Rachel Reeves have decided against increasing income tax rates in the forthcoming Autumn Budget, opting instead for a series of more targeted tax measures.
The move, confirmed to the Office for Budget Responsibility earlier this week, marks a significant shift in the government’s fiscal strategy and reflects concerns about the political and economic consequences of a broad-based tax rise.
Instead of raising headline income tax, the Treasury is now considering a series of targeted tax adjustments to address a projected £30 billion shortfall. Among the options under review are an extension of the freeze on income tax thresholds, new levies on high-value properties, and increased duties on sectors such as gambling.
The decision to abandon an income tax rise comes after internal analysis indicated that such a move would likely provoke dissent among MPs and voters. The government had previously considered a 2p increase in income tax, offset by a reduction in national insurance, but this approach has now been set aside in favour of less broad-based measures.
One of the most likely steps is the continued freeze of income tax and national insurance thresholds. Analysts estimate that extending the freeze could generate between £7 billion and £9 billion annually, as more individuals are drawn into higher tax brackets without any change to rates. The Institute for Fiscal Studies has calculated that maintaining the freeze until 2030 would result in an additional 790,000 people paying the higher rate of income tax, and could push millions of pensioners into the tax system as the state pension rises above the threshold.
Other measures under consideration include changes to capital gains tax, inheritance tax reliefs, and property-related taxes. Commentators suggest that aligning capital gains tax more closely with income tax rates or reducing reliefs could raise significant revenue. Similarly, tightening inheritance tax rules may affect high-net-worth individuals and families with business assets.
The government has also ruled out the introduction of an “exit tax” on wealthy individuals moving assets abroad. The proposal, which would have imposed a charge of up to 20% on assets left in the UK by emigrants, was abandoned after concerns it could prompt an exodus of entrepreneurs and investors.
The Chancellor had also considered imposing a charge on limited liability partnerships, a measure expected to raise £2 billion annually. However, Treasury modelling suggested that such a move would be counterproductive, as affected parties would likely take steps to avoid the charge, ultimately reducing government revenues.
Industry observers expect the Budget, scheduled for Nov. 26, to include a “smorgasbord” of smaller tax changes rather than sweeping increases to major taxes. These could include higher duties on gambling and luxury goods, reforms to stamp duty or council tax, and adjustments to pension tax reliefs.
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