Autumn Budget tax modifications predicted after Keir Starmer warns of ‘ache’ to come back

Keir Starmer has warned the public Labour’s first Budget will be “painful” as he lays the ground for a difficult Autumn Statement on October 30.

The PM’s delivered a major speech on the state of the country on Tuesday where he set out the gloomy message from the No10 rose garden. The new PM claimed “things are worse than we ever imagined” as his government grapples with a £22billion black hole it inherited from the Tories.

Chancellor Rachel Reeves has already laid the ground for tax rises. In the clearest sign yet of her plans, at the end of July, she said “I think that we will have to increase taxes in the Budget” when asked whether they would be raised.

Speaking on Wednesday morning, she again refused to rule out a rise in inheritance tax or capital gains tax when directly asked. “I’m not going to write a Budget two months ahead of delivering it,” she said, before adding: “We’re going to have to make difficult decisions in a range of areas.”

Here are some policies that may be announced in the Autumn Statement – and some that might be missing.

Capital Gains Tax

There is mounting speculation that Labour could increase capital gains tax. Capital gains is a tax you pay when you sell an asset which has increased in value. It applies to things such as second homes or shares not held in individual savings accounts (ISAs), but not to your main home as long as you’ve always lived there.

During the election, the Tories accused Labour of plotting to change a rule that means you don’t pay the tax on your primary home but Mr Starmer explicitly ruled it out. He said it never his policy and that he could “absolutely” confirm it wouldn’t happen over the next Parliament if he won the election.

But ministers have failed to rule out a raise in capital gains in some way. Critics have highlighted that the current rates are much lower than income tax rates and tend to benefit richer people.

Capital gains tax starts at a rate of 10% (or 18% on residential property) on profits above £3,000. For people who earn more money, the rate is currently 24% on gains from residential property or 20% on gains from other assets. Speculation has been growing that capital gains tax could be brought more in line with income tax, which could mean upping the higher rate from 20% to 45%.

Inheritance Tax

Ministers have also failed to rule out changes to inheritance tax. The 40% tax only applies to wealthy people who have an estate worth £325,000. This rises to £500,000 if a home is given to a child or a grandchild – meaning a couple have a combined tax-free property limit of £1million when they die. According to Government figures, just 3.7% of all deaths in 2020-21 resulted in an inheritance tax charge.

But it only applies to fewer than one in 20 estates. No tax is paid if the estate is valued below £325,000, or if anything above this is left to a husband or wife, civil partner, charity, or a community amateur sports club.

Ms Reeves could be looking at increasing the 40% rate of inheritance tax, or she might look to limit some of the relief or exemptions on certain inherited assets. For instance, agricultural land and pension savings can both be inherited tax-free.

Stealth Tax

Paul Johnson, director of the Institute for Fiscal Studies (IFS), has previously voiced his opinion that an obvious solution to help Ms Reeves fill her £22billion black hole would be to focus on tax thresholds. These are the start and end points of different tax brackets and determine the amount of money you earn before any tax starts to be paid – or before you move into a higher tax group.

Currently the thresholds on income tax and National Insurance are frozen until 2028. The policy is seen as a tax rise as thousands of people pay more tax when they are dragged into higher tax brackets with regular pay rises. Labour does not plan to reverse the current deadline – and could even look to extend them beyond this date in the Budget.

Taxing savings more

Savers are not currently limited on how much they can put in their tax-free Individual Savings Accounts (ISA) over their lifetime, beyond putting in £20,000 per year. Millions of Brits use the savings accounts to build their wealth by getting interest on huge sums of money.

The Resolution Foundation has argued that £20,000 a year is a big sum – more than four times the overall sum people have in their total savings, let alone how much they save per year. The thinktank says it would be better to have a lifetime cap of £100,000.

The think tank has argued tax-free ISA savings will remain a costly tax-break for the Treasury but that introducing a lifetime savings cap of £100,000 could raise £1billion a year.

Business rates

Labour has committed to reforming the current business rates system, pledging to “levelling the playing field between high street and online retailers”. Business rates are the property tax system for businesses, impacting sectors such as retail, hospitality and leisure. Earlier this month chief executive of Sainsbury’s Simon Roberts criticised the business rates tax system, stating it is “no longer fit for purpose”.

He warned that the planned increases could result in thousands of high street closures and job losses. The UK’s second-largest supermarket chain chief also supported calls for a 20% reduction in business rates for retail companies.

Labour has promised to overhaul the business rates system. It said the reforms will be revenue-neutral, meaning any reductions will need to be offset elsewhere in the tax system. Further details on how they plan to overhaul the tax system could be set out in the Budget.

National Insurance, VAT and Income Tax

The PM has made clear his election manifesto vow not to hike taxes on “working people”. Despite there being much debate around the definition of “working people”, this line has been accepted to mean he does not plan tax rises on income tax and national insurance.

Whenever Mr Starmer reassures people that these three taxes won’t be touched, it is always followed by terms such as “difficult decisions” or “tough choices” must still be made. On Tuesday, he said firmly that there will be more “difficult trade offs” to come. “I won’t shy away from making unpopular decisions now, if it’s the right thing for the country in the long-term, that’s what a government of service means,” he said.

Winter Fuel Allowance

Keir Starmer has been facing calls to reverse his decision to scrap winter fuel payments for millions of pensioners. Last month the Chancellor Rachel Reeves announced support will now be means-tested – for those on pension credit and other benefits – a “difficult decision” that the PM on Tuesday defended.

While the policy has already been announced, questions are rising as to whether Mr Starmer could U-turn on the plan as backlash grows. One Labour MP told the Mirror this week: “They need a U-turn on the winter fuel payments. There needs to be a wealth tax.”

Pensioner campaign group Silver Voices head Dennis Reed added: “There will be horror stories about people who can’t afford to heat their homes over the winter. I think they ought to have been looking at more windfall taxes on the banks, the energy companies and the internet giants. They seem to be getting away with it.”

Private Pensions

Another option Ms Reeves may consider – which could cause another backlash after the winter fuel allowance cut – would be to target pension tax relief.

Currently, people get tax relief on payments put into private pension pots by themselves or their employers up to certain limits. Savers enjoy tax relief at the same rate as their income tax – meaning basic rate taxpayers receive relief at 20% and higher rate taxpayers at 40% or 45%.

But there has been speculation that a flat rate of pension tax relief could be introduced. It has been reported that the Chancellor is expected to consider a proposal for a flat 30% rate of pension tax relief. It would mean wealthier taxpayers, who get the 40% tax relief, would see their relief reduce by 10%. Such a move is expected to raise billions of pounds for the Government.

Tax on 1% richest

Pressure is mounting on Mr Starmer to focus his energy on taxing the super-wealthy more. He is facing calls from unions and MPs in his own party to direct his “difficult decisions” on those who already have enough cash – not on pensioners or already struggling families.

Unite general secretary Sharon said: “Britain is in crisis, yes. But to say there is no money to rebuild industry and infrastructure, or to restore our public services, is simply not true. The top 50 families have more wealth than half our population. If we taxed 1% on the wealthiest 1%, the black hole would be gone.”

Apsana Begum, who was one of seven MPs suspended by Labour for voting with the SNP to demand the Tory two-child benefit cap is axed, added: “A just choice now would be more taxes and less profits for the super-rich. That’s what millions of people desperately need.” Labour’s Nadia Whittome added: “We must redistribute wealth and power.”

Two-child benefit limit

Mr Starmer has pushed back on calls to reverse the two-child benefit limit – a policy dating back to the Tory austerity years and is blamed for driving kids into poverty. A row erupted at the end of July, just weeks after being elected, when seven Labour MPs were suspended for backing an SNP amendment demanding the policy is withdrawn

The PM has insisted it is a difficult choice not to reverse the policy but that the financial books just won’t allow him to do so. The policy – and the lack of action to change it – is likely to come up on Budget day.

The two-child benefit limit means families do not receive certain benefits for their third or subsequent children. It came into effect in 2017 and applies to two benefits – Universal Credit and Child Tax Credit. Experts and campaigners say reversing the two-child limit would pull hundreds of thousands of kids out of poverty.

Labour has launched its own child poverty taskforce, headed by Education Secretary Bridget Phillipson and Work and Pensions Secretary Liz Kendall. The two-child benefit limit will likely figure in their conclusions, meaning Mr Starmer will undoubtedly face more pressure.