Rachel Reeves has warned that tax rises and more public spending cuts are in the pipeline for the October 30 Budget.
The Chancellor has sent her first draft of the Budget to the financial watchdog the Office for Budget Responsibility which will do the sums on the Labour government’s proposals to work out how much they will cost or save.
She may need to raise up to £25 billion from tax increases if she wants to keep spending rising with national income, the Institute for Fiscal Studies is warning
Traditionally, Chancellors make public very few details of their fiscal plans ahead of the Budget or Autumn Statement.
But some tax rises appear more likely than others.
In Labour’s manifesto, the party ruled out an increase to income tax, VAT and National Insurance – or did they for the latter?
It states: “We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”
Significantly, Sir Keir Starmer has left open the door to increasing National Insurance on employers, not ruling this out, and No10 stressing the pledge not to raise taxes on “working people”.
An NI hike on employer contributions could raise billions, so is tempting, but the Tories would swiftly condemn it as a tax on jobs.
The other tax rises that Ms Reeves could go for include inheritance tax and capital gains tax.
The Treasury was reported to be modelling raising capital gains tax to between 33 per cent and 39 per cent.
IFS director Paul Johnson, though, said any changes to capital gains tax should be a “careful reform” rather than a simple increase.
Council tax may rise by five per cent a year, which would be around double the rate of inflation.
VAT is already being added to private school fees.
The new government may be tempted to scale back pension tax relief, currently at 40 per cent, for higher earners.
But doing so would risk hitting a key group of floating voters and governments have previously shied away from the move.
Winter fuel payments are being axed for all pensioners apart from those on pension credit.
The decision has sparked worries that free bus passes for the elderly may also be targeted.
Transport Secretary Louise Haigh says the free bus pass is staying, though, this is yet to be confirmed by the Treasury.
Labour has pledged to cap corporation tax at the current level of 25 per cent, but it could still tweak this levy to raise more revenue.
Ms Reeves may also change the official definition of debt which would allow her to borrow more to invest, though this would risk accusations that Labour is not being fiscally prudent.
