With the UK finances on a knife edge thanks to her disastrous tenure, Reeves may be forced to hike our taxes for the second time in just six months. These are her seven most likely targets.
1. Income tax grab. During the general election, Reeves and PM Keir Starmer ruled out hiking the big three taxes – income tax, national insurance (NI) and VAT.
Reeves has already stretched that pledge by hiking employer’s NI. Now, there’s a good chance of another sleight of hand with income tax.
Sanjay Raja, Deutsche Bank’s chief UK economist, told the Daily Telegraph that Reeves is likely to extend the freeze on income tax thresholds in her spring statement.
Currently, they’re due to be frozen until 2028, driving up bills every year. Raja reckons she’ll extend the freeze by another two years, to 2030.
It would break Labour’s pre-election pledge but saying one thing and doing another hasn’t troubled Reeves before.
2. Capital gains tax raid. As I wrote earlier this month, most analysts expected Reeves to hike capital gains tax (CGT) in her autumn Budget, but it didn’t happen. There’s still time.
What she did do in October was lift the CGT rate for basic-rate taxpayers from 10% to 20%, in line with income tax. That’s a bizarre move for a Labour chancellor, as it hit lower earners. Now, she may redress that.
Today, higher earners pay just 24% CGT. Reeves could hike that in line with income tax too. This would see higher-rate taxpayers pay 40% and those on the additional rate pay 45%. That would hammer second homeowners, business owners and investors with shares outside tax-free ISAs.
3. Reversing NI cuts. Before every Budget, the Treasury suggests potential tax hikes or benefit cuts.
It’s prone to make a hash of this – it suggested Reeves scrapped the Winter Fuel Payment, and we all know how that ended
Now another option is on the table: reversing Jeremy Hunt’s pre-election 2p NI cut, pushing it up from 8p in the pound to 10p. It would break another manifesto pledge but who’s counting?
4. Cutting pension tax relief. Every Budget brings speculation that the chancellor will slash pension tax relief. The Treasury spends a staggering £50billion a year on it, and it disproportionately benefits higher earners, who can claim 40% or 45% relief, while basic-rate taxpayers get just 20%.
Reeves could equalise relief at 25% for all – and save the Treasury billions. No chancellor has dared touch pensions tax relief yet, but this one is desperate.
I’ve got the sneaky feeling that she’ll slash the pensions annual allowance from £60,000 to £40,000 or less. We’ll find out on March 26.
5. Tax-free ISA clampdown. Think tank Resolution Foundation has called for a £100,000 cap on tax-free ISA benefits. Its former boss Torsten Bell has just been appointed to the Chancellor’s Treasury team. It’s his idea, and now its time may have come.
ISA tax breaks cost the Treasury £7billion a year and rising fast. It’s a juicy target. The Lifetime ISA, aimed at younger savers, could be scrapped altogether. That’s another rumour flying around.
6. Fuel duty hike. I was astonished Reeves didn’t hike fuel duty in October, but that could soon change. Raising it could generate £5billion and keep green guru Ed Miliband happy too. So it’s win-win for Reeves, lose-lose for motorists.
7. Squeezing inheritances (again). Reeves has already widened the inheritance tax net by applying it to unspent pensions, private businesses and farms.
Labour’s war on wealth could continue in March, with Reeves axing seven-year rule on gifts, meaning more estates would be hit.
Until Budget day, we can’t say for sure which taxes Reeves will hike. There are some steps people can take – such as mopping up pension and ISA allowances – but acting on speculation can backfire so be careful.
