As the Autumn Budget 2024 approaches, Chancellor Rachel Reeves is scouring the fiscal landscape for ways to bolster the nation’s coffers. Faced with a daunting £22bn “black hole” in the public purse that threatens to persist over the coming five years, the Labour government finds itself grappling with what Reeves terms “difficult decisions” on taxation, welfare spending, and fiscal policy.
Ambitious Tax Targets to Avoid Austerity’s Return
Reeves, resolute in her aim to sidestep a “return to austerity,” has intimated to cabinet colleagues that this steadfast commitment could necessitate more substantial tax increases than initially envisioned. The chancellor’s objective is as ambitious as it is crucial: to amass an annual £40bn through a combination of tax hikes and spending reductions, thereby surmounting the budgetary shortfall while adhering to her “golden rule” of reconciling day-to-day expenditures with tax income.
Capital Gains Tax in the Crosshairs
Among the potential fiscal levers under examination is a rise in capital gains tax (CGT). This tax, levied on the profits derived from asset sales, currently generates approximately £15bn annually from around 350,000 taxpayers. Intriguingly, the bulk of this revenue stems from a select group of ultra-wealthy individuals. By aligning CGT rates with income tax bands, the exchequer could potentially reap an additional £14bn, though a more targeted approach could yield a still-substantial £8bn windfall.
Inheritance Tax Loopholes Under Scrutiny
The labyrinthine world of inheritance tax also finds itself under the microscope. Presently, this levy, typically applied to the estates of the nation’s most affluent 5% of deceased individuals, contributes roughly £8bn to the treasury each year. By sealing various loopholes—such as incorporating pension pots, eliminating business and agricultural reliefs, and streamlining the intricate residence nil-band rate—experts suggest that up to £4bn in additional revenue could be secured.
Employer Contributions: A Double-Edged Sword
Reeves is also weighing the pros and cons of raising employer national insurance contributions. One option entails extending these contributions to pension payments, a move that could theoretically inject £18bn into the exchequer. However, the necessity to reimburse public sector employers would pare this net gain down to around £12bn. Alternatively, a straightforward one percentage point increase in the employer contribution rate could yield nearly £9bn by 2027-28, according to HMRC projections.
Yet, this strategy is not without its detractors. Critics argue that such a move might contravene Labour’s campaign pledge, cautioning that the ultimate burden would fall upon workers in the form of depressed wages. The chancellor, however, could counter that businesses, not “working people,” would shoulder the expense.
Sin Taxes and Fuel Duty Freeze Under Review
Beyond these headline measures, the government is mulling a potential £3bn tax hike on the gambling sector, a proposal recently put forth by the left-leaning IPPR think tank. Simultaneously, the thorny issue of fuel duty looms large. Having been frozen since 2011 under successive Conservative administrations, this protracted hiatus has deprived the treasury of a staggering £100bn in lost revenue.
While the default expectation is for the temporary 5p cut to expire and rates to climb in line with inflation next spring, any decision to prolong the freeze would come at a hefty price tag of £4.8bn, the Resolution Foundation calculates.
Navigating the Fiscal Tightrope
As the Autumn Budget draws near, Rachel Reeves finds herself walking a fiscal tightrope. Balancing the imperative to shore up the nation’s finances with the desire to avoid a return to austerity’s biting embrace is no mean feat. Yet, with a steely resolve and a keen eye trained on an array of potential fiscal levers, the chancellor appears poised to make the difficult decisions necessary to chart a course toward a more sustainable economic future.
In the coming weeks, as the full scope of Labour’s budgetary vision comes into clearer focus, the nation will watch with bated breath to see how Reeves and her team navigate these choppy fiscal waters. The stakes, as ever, could scarcely be higher.
