LONDON (Reuters) -British finance minister Rachel Reeves is expected to raise tens of billions of pounds in taxes in her November 26 budget to stay on track for her fiscal targets, a key issue for bond investors.
Reeves is expected to make only small spending cuts.
The Sunday Times said that Reeves was looking at more than 100 possible tax and spending options, with a focus on the top third of earners, but there was still uncertainty about how much taxes needed to go up.
Following is a summary of measures that Reeves is reportedly considering or has been urged to introduce to plug a shortfall which could hit 30 billion pounds ($40.26 billion).
INCOME TAX
Reeves and Prime Minister Keir Starmer promised voters before winning an election last year that they would not raise taxes paid by “working people”.
But on October 29, Starmer declined to commit to the pledge and said the economy was in a worse state than thought.
The Guardian reported on October 23 that Reeves might increase the main income tax rate for all workers by one percentage point to raise an extra 8 billion pounds a year.
The Telegraph said on October 29 Reeves was eyeing a 2 pence rise in income tax rates and a similar cut to social security contributions, which would raise 6 billion pounds by increasing the tax take from pensioners, landlords and the self-employed.
Reeves is expected to extend a freeze on the thresholds at which people pay basic and higher income tax rates by two years until 2030, raising about 8 billion pounds.
VAT
Value-added tax could be simplified by ending lower or zero rates for products such as food and children’s clothes. But that could add to what is already the highest inflation among big, rich economies. Tax experts say a lower starting threshold for businesses paying VAT would bring in more revenue and remove a disincentive for growth among small firms.
A NEW TAX
Reeves might introduce a new tax, on incomes for example, dedicated to specific spending, for example on public health. Such a move would probably be seen as breaking the spirit of the 2024 pre-election commitment.
THE WEALTHY
Reeves has ruled out a new wealth tax but said on October 15 that higher taxes on the wealthy “will be part of the story”, leading to speculation that she might increase taxes on capital gains and other income sources. Reeves often says “those with the broadest shoulders should pay their fair share of tax”.
EXIT TAX
The Times said on October 31 that Reeves was considering imposing a 20% tax on wealthy people leaving the country, based on the value of their business assets. Similar taxes exist in other rich economies.
