REEVES IS HINTING AT TAX RISES THIS AUTUMN. HERE ARE THE 7 SHE COULD INCREASE

Rachel Reeves has hinted she will raise taxes this autumn after the Government’s embarrassing climbdown on benefits reforms slashed her forecast savings from £5bn to nothing.

The Chancellor said the fallout had been “damaging” after the Government reneged on its plans to restrict eligibility for the personal independence payment (PIP) in the face of a backbench revolt.

The original welfare proposals had been part of a package that ministers expected would save up to £5bn a year, but funding will now have to be found from elsewhere to plug the gap left by the concessions to rebels.

Appearing to confirm the tax rises, Reeves told The Guardian it would be “irresponsible” to rule anything out and warned “there are costs to what happened” with the welfare bill.

Reeves has already told ministers that the decision to water down the welfare package may mean taxes will rise at the autumn Budget, The Times reported, as she warned the increases in her first Budget, which included a £24bn hike to employer national insurance, were “painful” but “the low-hanging fruit” compared to what may be to come.

With tax rises looking ever likely in the autumn, The i Paper takes a look at some of the levies the Government may use to balance the books.

Income tax

Raising the basic rate of income tax by just 1p would yield around £8bn a year for the Treasury, more than covering the £5bn gap left by the welfare bill climbdown.

But increasing income tax would break a major manifesto commitment. Labour throughout the general election last year, pledged not to raise taxes on “working people”. One way to get around this politically may be to extend the freeze on income tax thresholds again. The Treasury would need to hope that enough wages rise with inflation to drag more taxpayers into higher tax bands, so they end up contributing more.

A leaked memo from Deputy Prime Minister Angela Rayner’s department ahead of the spring statement in May called for Reeves to freeze the threshold where the higher 45 per cent tax rate is paid.

A two-year extension of the higher rate freeze could yield around £8bn a year by 2029-30. But the Government may now seek to freeze all tax brackets to plug the gap.

Corporation tax

Reeves has also promised not to raise the headline rate of corporation tax as she courted business leaders ahead of the election last year. Despite this, businesses bore the brunt of her October budget through a £25bn increase in employer National Insurance Contributions.

The changes meant employer contributions increased from 13.8 to 15 per cent the threshold for contributions has dropped, meaning businesses now begin paying the tax once a salary hits £5,000 instead of £9,100.

Rayner’s leaked memo also suggested raising the corporation tax rate for banks, who have benefited from higher interest rates and the windfall on reserves held at the Bank of England under its quantitative easing programme.

Reversing the Rishi Sunak government’s cut to the bank surcharge from 8 per cent to 3 per cent should raise around £1.5bn.

Dividends

No tax is currently paid on dividend income that falls within your income tax personal allowance. This is the money a shareholder receives from the company they are invested.

A £500 dividend allowance also means individuals only pay tax on any dividend income above this. Removing this allowance would create around £325m a year, HMRC data suggest.

The impact of this, however, may discourage people from investing in companies at a time when the Government desperately needs the economy to grow. Such taxes would likely not raise enough money for the Government either.

Pensions

Sunak’s Government also abolished the standard lifetime pensions allowance last year – something many within the Labour ranks have called to be reinstated, including Labour. The allowance puts a cap on how much savers can put into their pension pot before a higher rate of tax is applied.

This is likely to be politically difficult for Labour after its controversy last year over winter fuel payments. The Government may be hesitant to introduce any other policies which would upset pensioners.

A new levy

Boris Johnson and his then-Chancellor Sunak in 2021 introduced plans for a new health and social care tax to pay for reforms to the care sector and NHS funding in England. The Government at the time said this would raise £12bn a year, and initially would work as a 1.25 percentage point in national insurance.

The plan was swiftly scrapped by Liz Truss’s government, but this may be something Reeves looks to – potentially under the guise as a defence levy following the Government’s commitment to spend 5 per cent of its GDP on defence by 2035.

Wealth tax

A similar new levy may be to install a wealth tax, something the left of the Labour Party has repeatedly called for.

Rachael Maskell, the MP who pioneered the rebellion on Tuesday to force the Government into shelving key pillars of the bill, called for an increase in taxes for the very richest instead of the £5bn in benefits savings.

Rayner, in the same leaked memo to her threshold suggestion, also suggested a £4bn a year wealth tax.

Ahead of the spring statement, YouGov on behalf of Oxfam found that 77 per cent of people favoured an increase in taxes on the very richest to improve public finances, rather than see cuts to public spending. Such a move may, however, cause the very richest to leave the UK, reducing the Treasury’s tax income.

ISA allowance

Reeves has long been expected to cut the annual tax-free cash ISA allowance in her Mansion House speech this month, with plans in the offing well before last week’s welfare bill climbdown.

Savers can currently put £20,000 a year into ISAs – split between investments and cash – and the earnings or growth they receive are entirely free of tax. The Chancellor is now expected to reduce the amount savers can put into cash, hoping they will instead invest in British companies.

The reduced cash allowance could be reduced to as little as £4,000 a year.

2025-07-05T12:27:06Z