what Rachel Reeves could announce

As the Labor government prepares to present its first Budget on October 30, anticipation is building as businesses and individuals alike prepare for potential tax changes and spending shifts.

Chancellor Rachel Reeves has made it clear that tax increases are inevitable, describing them as necessary to restore financial and economic stability. In her speech to the Government Investment Summit earlier this week, Reeves stressed the importance of this stability as a precursor to investment, suggesting that companies recognize the need for such measures to “balance the books”.

While Labor has pledged not to raise key taxes affecting working people, such as income tax, value-added tax, and personal National Insurance contributions, the party has left the door open to increase employers’ National Insurance contributions, capital gains tax (CGT), and other levies. . Including those working in the gambling sector. The rumored changes have already sparked concern among some industries, with UK bookmakers seeing their shares fall after reports of potential tax rises of up to £3bn in the upcoming Budget.

Meanwhile, Prime Minister Sir Keir Starmer sought to calm nerves, dismissing speculation that CGT could rise to 39% as “far from target”, but stressing that tax rises would be part of a plan to restore the UK’s economic standing. This comes against the backdrop of criticism from the business community regarding Labour’s handling of the economic legacy left by the previous Conservative government, with claims of a £22bn fiscal deficit requiring “difficult decisions”.

Here are details of potential changes that Chancellor Reeves could announce in the Autumn Budget 2024:

National Insurance contributions for employers

One of the most important potential measures is to increase employers’ National Insurance contributions. Although the Labor Party ruled out increasing national insurance cards for employees in its election manifesto, it did not extend this promise to include employers. Jonathan Reynolds, the business secretary, hinted at this possibility, suggesting that raising NICs for employers could be an effective way to boost Treasury revenues without directly impacting workers.

A one percentage point increase in NICs for employers could raise nearly £8.9 billion a year, providing a major boost to the government’s finances as it seeks to close the financial gap. However, the move may face opposition from companies already struggling with rising costs amid inflation and rising interest rates.

Capital gains tax

Capital gains tax (CGT) is another area under scrutiny. Although Starmer has played down the likelihood of CGT rising to 39%, the Chancellor may still look to increase CGT rates to bring them more in line with income tax rates, or expand the range of assets subject to CGT. Currently, CIT is levied at 10% on basic rate taxpayers and 20% on higher rate taxpayers, with a higher rate applying to property transactions.

Increasing CGT could raise significant revenues, but it also risks discouraging investment in the UK, especially in the technology and start-up sectors, which rely heavily on capital investment. Some investors have already accelerated plans to sell their businesses ahead of potential tax increases, highlighting the uncertainty surrounding the issue.

Non-resident tax status

Controversial non-domestic tax status, which exempts income earned abroad from UK tax, is also on the table. While Labor has previously criticized the system for allowing wealthy individuals to avoid UK tax, there are concerns that changing this position could prevent high-net-worth individuals and companies from settling in the UK.

Billionaire John Caudwell, a former Tory donor turned Labor supporter, has warned against radical changes to the non-resident tax system, warning that it could harm the UK’s ability to attract wealthy investors. Any changes to this tax status must be carefully balanced to avoid negative impacts on inward investment.

Income tax thresholds

Although the Chancellor of the Exchequer is unlikely to raise income tax rates, she could lower the thresholds at which different tax bands begin. Currently, individuals pay income tax at 20%, 40% and 45% depending on their income, but lowering the thresholds would lead to higher taxes on income. Bringing more people into higher tax brackets.

The move would allow the Treasury to raise revenues without breaking Labour’s promise not to raise income tax rates. According to the Institute for Fiscal Studies, cutting the personal allowance or base rate limit by 10% could generate an additional £10bn and £6bn, respectively, in annual revenue. However, this approach would still look like a tax increase in the eyes of many, because it would effectively increase the tax burden on middle-income earners.

Pensions

Reeves is expected to reverse his previous plans to cut tax relief on retirement savings, after warnings that such a move would disproportionately affect public sector workers, including teachers and nurses. Currently, pension contributions are eligible for tax relief at the saver’s marginal rate of income tax, meaning higher earners get a 40% or 45% relief on contributions.

While cutting the pension tax break could raise billions, it risks alienating a key section of voters and sparking a backlash from unions and public sector organizations. As a result, it seems likely that the Chancellor will avoid making major changes in this area for the time being.

Inheritance tax

Inheritance tax (IHT) is another area where Reeves may introduce reforms. While IAT currently applies to only about 4% of estates, it is often viewed as an unfair form of double taxation. Labor could look to increase revenue from the IHT by removing exemptions for commercial and agricultural assets, which currently pass through tax-free.

Capping these exemptions, or scrapping them altogether, could raise around £2bn a year, according to the IFS. Other potential changes include closing loopholes that allow wealthy individuals to avoid CGT when passing estates to their heirs, which could generate additional money for the Treasury.

Fuel duty

Reeves may break with the Conservative tradition of freezing fuel duty, which has been in place since 2011. The fuel duty hike could raise an extra £6bn a year, which would provide a significant revenue boost at a time when the government is looking to close the deficit Financial. The move could also help steer motorists towards more environmentally friendly cars, in line with Labour’s green agenda.

Private equity dividends

The taxation of private equity dividends, especially carried interest, has long been a controversial issue. Currently, carried interest is taxed as capital gains rather than income, which means private equity executives benefit from lower tax rates. Increasing the tax rate on carried interest to match income tax rates could raise an additional £2 billion in revenue, although it could also lead to behavioral changes that reduce overall taxation.

Gambling taxes

Reports that the government is considering increasing taxes on UK gambling companies by up to £3 billion have already rattled the markets. While Labor may see the sector as a potential source of significant revenue, there are concerns that such a move could harm the industry and lead to job losses.

Other tax options

Reeves ruled out imposing a wealth tax, despite pressure from trade unions to impose it. However, the Chancellor may introduce a new tax along the lines of the health and social care tax introduced by Boris Johnson’s government in 2021. Such a tax could provide a new revenue stream without breaking Labour’s promises on income tax, VAT or personal national insurance contributions.

Financial rules

The Chancellor may also amend the financial rules to allow greater scope for public investment. By adopting alternative debt measures, such as Public Sector Net Worth (PWNW) or Public Sector Net Financial Liabilities (PSNFL), Reeves could increase fiscal leverage by up to £60 billion, providing additional funds for infrastructure and public services.