John Healey is set to make his first Budget announcement as Chancellor on 17 November, with speculation intensifying over potential changes being considered by Prime Minister Andy Burnham amid economic challenges, reports BritPanorama.
The upcoming Budget faces heightened scrutiny as Burnham confronts a cost-of-living crisis and economic uncertainty exacerbated by international events. Recent data indicates that inflation has reached a five-month high, contributing to concerns about the financial landscape.
According to forecasts from KPMG, pressures linked to the US-Iran war and stagnant growth have led to a substantial reduction of nearly £12 billion in the government’s fiscal headroom. As such, a combination of tax increases and spending cuts is anticipated in the upcoming Budget.
Burnham has acknowledged the daunting task ahead, deeming the Budget “challenging.” Despite his commitment to Labour’s 2024 manifesto, which promises not to increase basic tax rates, the government still has several options to enhance revenue.
One of the prominent proposals is the equalisation of Capital Gains Tax (CGT), with suggestions to raise rates up to 45%. This tax applies to profits made on the sale of assets, excluding primary residences and cars. Experts estimate that aligning CGT rates with income tax rates could generate around £14 billion in additional revenue, though this is contingent on taxpayer behavior.
Unfreezing income tax thresholds
The personal allowance for income tax, frozen at £12,570 since 2021, is another point of contention. The freeze effectively increases the tax burden on a wider range of earners as salaries rise without a corresponding adjustment in the thresholds. This policy is projected to boost Treasury revenue by £8 billion by 2030.
While Burnham’s government has dismissed reports of reconsidering the link between thresholds and inflation, he previously acknowledged that voters frequently raised this issue, suggesting it might feature in his inaugural Budget.
‘Mansion tax’ expansion
Proposals to broaden the scope of the so-called mansion tax, officially termed a high-value council tax surcharge, are also being considered. This measure targets properties valued at £2 million or more, with plans to lower the threshold to £1.5 million, potentially doubling annual revenues from £400 million to £800 million.
Inheritance tax changes
Speculation has arisen regarding Burnham revisiting past proposals to overhaul inheritance tax. While his government has distanced itself from consolidating this tax framework, recent discussions suggest that tightening loopholes could be an alternative strategy to bolster revenues.
Reforming property taxes
Burnham has criticized the current council tax system, highlighting its regressiveness relative to property value increases over time. Calls for a land value tax, which would replace stamp duty with a levy based on land value, have emerged in conjunction with proposals for a proportional property tax advocated by the Resolution Foundation.
The exact taxation policies that will be pursued remain unclear, as the Treasury traditionally refrains from commenting on Budget speculation. As the date approaches, analysts and constituents alike will be keenly observing how Burnham navigates these pressing fiscal challenges.
