John Healey is well and truly stuck between a rock and a hard place.
The Chancellor knows he needs to get a grip of the public finances in order to calm the jittery bond markets and tackle the UK’s eye-watering outlay on debt interest. But he is also keenly aware tax hikes, while boosting the Treasury coffers, risk backfiring badly. All the while, he is under pressure to find vast sums for big increases in defence spending, social care, and council housing. And that’s before possible help that may be needed for households over the winter if, as predicted, energy bills surge.
Andy Burnham has already pledged not to raise taxes on working people, and ruled out increases to income tax, national insurance and VAT. Speculation ahead of this year’s Budget has been noticeably less than 12 months ago, but here’s what we do know.
Banks
A windfall tax on banks’ profits is seen as a possible “low hanging fruit” for the Chancellor is he looks for ways to rake in money.
Whacking up taxes on banks also has widespread public support, with polls suggesting it is backed by 73% of Labour voters, 71% of Lib Dems, 69% of Tory and 64% of Reform and Green supporters.
Calls to up a levy on lenders grew after Britain’s Big Four banks – HSBC, Barclays, Lloyds Banking Group, and NatWest – made more than £29billion profit in six months. Trade union body TUC argues for upping the surcharge on banks’ profits to at least 8%, on top of the 25% corporation tax, could raise £9billion over four years.
However, industry lobbyists have hit back, arguing banks are already more heavily taxed that other financial centres around the world and that hikes will only dent lending and risk further slowing the economy.
Machine gaming duty
One suggested tax hike to emerge recently has been to hike the machine gaminbg duty.
Previous Chancellor Rachel Reeves held the slot machine tax at 20% in last year’s Budget, following heavy industry lobbying. However, there have been reports that the Treasury is looking at the tax again with a possible increase to 40%. According to the FT, the jump would be targeted at betting shops and adult gaming centres. Pubs, bingo halls and seaside arcades would be excluded, it is claimed.
The betting sector has come out fighting, warning any increase would lead to more bookies closing and widespread job losses.
Capital gains tax
Ministers are said to considering raising capital gains tax to fund an increase in the income tax personal allowance.
Reports say the PM and Mr Healey are said to be interested in a proposal by Dale Vince, a Labour donor and the founder of the green energy business Ecotricity, to bring the tax in line with the 45% rate of income tax.
The money raised would be used to offset increasing the tax-free personal allowance by £3,000 to £15,570, just below where it would have been had it not been frozen since 2021, and leaving the lowest fifth of earners £600 a year better off.
Capital gains tax is paid by investors, landlords and property owners when they sell an asset that has increased in value over time, such as company shares or a second home. The rate you pay is based on your income band as a UK taxpayer, ranging from 18% for a basic rate taxpayer to 24% for a higher and additional rate. That’s lower than how much people are taxed at on their income, which goes from 20% for a basic rate taxpayer, to 40% for higher, and 45% for the additional rate.
Holiday homes
One report claimed the Chancellor was considering taxing holiday lets as second homes rather than as businesses. It was suggested that Mr Healey was looking to close a loophole that has seen some second-home owners avoiding council tax by claiming their second homes are holiday lets. However, providers of holiday lets claim rules have already been tightened to prevent that.
Pensions
One way to tackle the growing benefits bill would be to address the thorny issue of the state pension triple lock. But with the government ruling out changes in this parliament, that looks to be off the table for now.
Instead, there has been renewed speculation that Mr Healey could target the tax-free lump sum allowance on private pensions.
At present, you can usually take up to 25% of the amount built up in any pension as a tax-free chunk, up to the value of £268,275. One idea is that the maximum could be slashed to £100,000, or the allowance scrapped altogether.
We had the same speculation ahead of the last two Budgets, but in both cases then Chancellor Rachel Reeves left it alone. However, that was before some savers were spooked by the rumours and used the current allowance, with consequences for their retirement.
Fuel duty
While much of the talk is around what taxes will rise, there is also speculation about those that could yet fall.
One scheduled increase that could well be scrapped, or at least delayed, is fuel duty. Duty was frozen under the Conservatives in March 2022 and Sir Keir Starmer’s government continued the freeze, deciding in May to push back a planned 3p increase in September until the end of this year.
The increase is set to take effect in January, but soaring pump prices mean the government could well push the date back again.