What Taxes Could Rise in the Budget?
Chancellor Rachel Reeves is anticipated to increase taxes in the upcoming Budget scheduled for 26 November. In her speech earlier this month, she emphasized the necessity of making the necessary choices to address crucial issues such as NHS waiting lists, national debt, and the rising cost of living. Notably, Labour previously committed to not raising income tax, National Insurance, or VAT for working individuals before the 2024 general election.
What Happens During the Budget?
– The Chancellor’s Budget statement reveals the government’s intentions regarding tax adjustments or spending cuts.
– It also addresses significant financial decisions impacting public services such as health, education, and law enforcement.
– The statement is delivered to MPs in the House of Commons, generally commencing around 12:30 PM and lasting about an hour. Following this, the Leader of the Opposition, Conservative MP Kemi Badenoch, will respond.
Why Are Tax Increases Expected?
Reeves has confirmed that tax increases and spending cuts are under consideration. The Chancellor’s financial rules, deemed non-negotiable, mandate:
– No borrowing to cover day-to-day public spending by the end of this parliament.
– A reduction in government debt as a percentage of national income by the end of this parliament.
In her unusual pre-Budget speech on 4 November, Reeves asserted that her commitment to these guidelines was iron-clad, attributing economic challenges to the prior Conservative government’s austerity measures and post-Brexit arrangements. The Institute for Fiscal Studies (IFS) projects a £22 billion financial shortfall, suggesting Reeves will likely need to raise taxes.
Possible Tax, National Insurance, and Benefit Changes
– Income Tax and National Insurance (NI):
The government may extend the freeze on income tax and NI thresholds, which is set to expire in 2028. A freeze would result in more people reaching taxable income tiers as wages rise. Reeves has suggested a focus on high earners, with potential adjustments impacting limited liability partnerships (LLPs) that could generate £2 billion in additional revenue.
– Help with Energy Bills:
There are plans to tackle cost-of-living issues by potentially lowering the 5% VAT on energy bills.
– Welfare Reforms:
There is increasing pressure to eliminate the two-child limit affecting benefit uplifts, a contentious issue among both MPs and the public.
– Pensions Adjustments:
Plans may include limiting tax breaks on pension contributions, possibly capping them at £2,000 within salary sacrifice schemes.
– Property Taxes:
Reform is anticipated, possibly replacing stamp duty with a new property tax, affecting both buyers and landlords.
– Electric Vehicle Tax:
A new tax on electric vehicles is under deliberation as fuel duties decrease.
– Business Tax Revisions:
There are calls for elevated taxes on banks and online gambling companies, reinforcing the notion that these sectors could contribute more.
The State of the UK Economy
The UK government continues to prioritize economic growth, as a robust economy supports increased spending, job creation, and better wages. The International Monetary Fund (IMF) recently predicted the UK would rank as the second-fastest-growing major economy by 2025, despite facing significant inflation challenges.
In light of these considerations, a debate among MPs will follow the Budget speech, leading to a vote that could implement these tax changes immediately. The Treasury will provide further insights into the financial implications of the proposed measures.
In conclusion, with rising taxes on the agenda, understanding the potential shifts can aid individuals and businesses in preparing for any upcoming financial changes.