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Yahoo
an hour ago
- Business
- Yahoo
The taxes Reeves could raise to pay for Labour's about-turns
Rachel Reeves faces another black hole in the public finances. This time she can blame her own MPs: the revolt by more than 120 Labour backbenchers has forced the Prime Minister to back down on his proposal to slow the growth in the benefits bill. Sir Keir Starmer's reforms were supposed to save £5bn per year. But now that he has performed another about-turn, the Institute for Fiscal Studies (IFS) estimates the scheme will only save £2bn, thus blowing a fresh £3bn hole in the Chancellor's numbers. 'These changes more than halve the saving of the package of reforms as a whole, making the Chancellor's already difficult budget-balancing act that much harder,' says Tom Waters, at the think tank. It comes weeks after the policy reversal on winter fuel payments for pensioners, which will cost more than £1bn. To make matters worse, the economy is slowing – in part because of Labour's record-breaking tax raids – which will undermine the tax revenues on which Reeves's plans relied. Ruth Gregory, at Capital Economics, estimates the combination of higher benefits spending and lower growth will cost the Chancellor £22bn compared to the Office for Budget Responsibility's forecasts at the Spring Statement. If MPs will not allow the Government even the most modest restraint on spending, and if the Chancellor will not again rewrite her own 'iron-clad' borrowing rules, that means more tax rises are on the way in the autumn. Here are the options Reeves will be looking at. The Government's biggest revenue-raiser, income tax, raked in £310bn last year – almost precisely matching the £313bn spent on benefits. Adding a penny to the basic and higher rates of income tax would bring in just over £10bn extra per year, according to HMRC estimates. That means at least 2p would need to be added to come close to repairing Reeves's Budget. If it were not for Labour's manifesto pledge not to raise the tax, this would be an obvious place for the Chancellor to turn. But the manifesto is hardly a meaningful constraint. The vaunted document also promised not to raise National Insurance contributions (NICs), but the Chancellor did just that in her first Budget. The Government argued that the manifesto promise only applied to the NICs paid directly by workers, not the much larger share paid by their employers. Income tax does not lend itself quite so easily to such a ruse, but the Chancellor could extend the Conservatives' long freeze on thresholds. A classic stealth tax, this method means that as workers receive pay rises they are pulled more quickly into higher tax brackets – even if inflation means the spending power of their pay packets is not actually growing. The freeze on thresholds, which is currently set to last until 2028, is already expected to bag the Chancellor nearly £50bn per year by the end of the decade. Extending it by another two years would bring in an extra £10bn per year, the IFS estimates. Given the sums involved and the fact that stealth raids do not affect workers in an obvious way, this is seen as a likely option. The Chancellor is unlikely to whack businesses with another raid. She has promised hostile bosses that she will not pull the same stunt on National Insurance contributions again. Andrew Bailey, the Governor of the Bank of England, has also warned that last year's tax raid is now weighing on the economy, meaning increasing the rate again could be counterproductive. But that does not mean the tax, which is set to bring in £200bn this year, has to go untouched. One option is to raise the rate paid by workers. This would breach even the revised version of the manifesto pledge, but could be framed as reversing reckless Tory tax cuts – under Jeremy Hunt, Reeves's predecessor in No 11, the rate was chopped from 12pc to 10pc and then down to 8pc. Each of those two percentage point moves cost more than £10bn, so reversing the cuts could help Reeves considerably. Increasing the rate of capital gains tax (CGT) is popular in Left-wing circles. Unfortunately, jacking up the tax paid on profits made from the sale of assets comes with a range of downsides, which can result in a higher tax rate in fact costing the Treasury revenue. A large share of CGT is paid by a very small number of people. If the higher rate means they simply decide not to sell their assets, then the tax take will plunge in short order. HMRC estimates that a one percentage point increase in the top rate ends up costing the Treasury £30m per year. A 5p increase costs £870m per year. A 10p jump loses a staggering £3.6bn per year for the public purse. As a result, increasing the rate of CGT seems unlikely. Another option ruled out in the manifesto, this levy on a large share of the things people buy is on track to bring in £200bn per year by the end of the decade. Currently charged at a rate of 20pc, increasing VAT might not be the most popular measure when households are already reeling from a cost of living crisis. None the less, it could be a tempting option when a 1p increase brings in £9.6bn per year. Alternatively, the Chancellor could slap the tax on items that are currently exempt – as she did with private school fees this year – or those that attract the reduced rate of 5pc, such as energy bills. Reeves has maintained the accounting wheeze employed by successive Conservative chancellors: freeze fuel duty year after year but pencilling in extra revenues from future increases. About half of her headroom comes from the official assumption that the tax on petrol and diesel will rise in future – yet few expect she will actually jack up the cost of driving. The fuel duty escalator has been frozen for a decade and a half, making it politically difficult to unfreeze. Most economists believe it will be kept frozen. It would be a shock to voters, but Reeves may find it an attractive revenue-raiser: reintroducing inflation-linked increases in fuel duty would raise an estimated £5bn a year. It is not just the big taxes that are on the table. Angela Rayner, the Deputy Prime Minister, wrote to Reeves with a raft of proposed tax increases ahead of the Spring Statement. Suggestions included: a higher bank surcharge, raising up to £700m from lenders; scrapping inheritance tax relief on Aim-listed shares, for anywhere between £100m and £1bn; removing the dividend allowance to bag £325m, as well as raising the tax rate on dividends; and further freezing the threshold at which high earners pay the additional rate of income tax. Raising the tax on enveloped properties, which are largely owned by companies, could raise another £200m, while closing a commercial property stamp duty loophole could net £1bn. Reinstating a lifetime allowance on pensions contributions might gain close to £800m per year. Rayner also suggested clawing back more child benefit from higher-earning households, for £600m, and tightening migrants' access to benefits. Together those measures could increase the Treasury's haul by £4.6bn or more. That would be useful, but is barely enough to cover the cost of Starmer's latest about-turns, let alone cover the other costs. The scale of spending commitments mounting up means Reeves is facing unpalatable choices when it comes to the Budget. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. 擷取數據時發生錯誤 登入存取你的投資組合 擷取數據時發生錯誤 擷取數據時發生錯誤 擷取數據時發生錯誤 擷取數據時發生錯誤
Bloomberg
4 hours ago
- Politics
- Bloomberg
Labour's ‘Starmtroopers' Mount Rebellion Against Their Leader
Keir Starmer's landslide UK general election win last July delivered to the House of Commons what was supposed to be a hand-picked army of loyalists molded in his image, a cadre that earned the moniker 'Starmtroopers.' As the prime minister's first anniversary in power approaches next week, the troops have mutinied, and some now have him and his chancellor in their sights. Backbench Labour Members of Parliament on Thursday forced the government into a humiliating U-turn on its flagship welfare reform policy, canceling some £3 billion ($4 billion) of planned disability benefit cuts which had enraged the left-leaning party's ranks. Downing Street had little choice but surrender: without concessions, Starmer faced the prospect of a parliamentary defeat Tuesday that would have been extraordinary for a government with a 165-seat majority, calling his premiership into question.
Daily Mail
8 hours ago
- Business
- Daily Mail
ANDREW PIERCE reveals the breathtakingly cynical reason why Keir Starmer WON'T sack chancellor Rachel Reeves...yet
As MPs poured out of the Commons after another stormy Prime Minister's Questions this week, the Chancellor Rachel Reeves cut a particularly lonely figure. With her head bowed, Reeves was exiting the Chamber alone – until one colleague caught up with her to walk loyally by her side. It was the chairman of the Labour Party, one Ellie Reeves, the Chancellor's younger sister. No other Labour MP, it seems, was willing to be seen associating with the embattled Chancellor. What a dismal year she has had. Reeves came into office last summer promising to 'unlock private investment', 'fix the foundations of our economy' and deliver 'sustained economic growth'. She has failed on all three counts – and it increasingly shows. Many Labour MPs commented on the Chancellor's body language as she took her usual place next to Starmer at PMQs. 'She looked broken, like she had been tranquillised,' says one source. 'She is clearly deeply troubled and unhappy.' There have even been reports – sharply denied by the Treasury – that Reeves spent much of Thursday in floods of tears amid shouting matches with colleagues. 'It's not true: she is resolute,' says one of her allies – a diminishing group these days. Now the Chancellor's problems are about to get even worse. Keir Starmer 's screeching U-turn over disability benefit cuts means she has to find billions to fill a budget black hole – and comes only weeks after her humiliating £1.25 billion volte-face on winter fuel payments. With almost 130 Labour MPs joining the revolt over the Welfare Bill, there are now huge questions about the Prime Minister's grip over his party. Keir Starmer 's screeching U-turn over disability benefit cuts means Reeves has to find billions to fill a budget black hole But it is the debacle over disability cuts that threatens to destroy the remnants of the Chancellor's political and economic credibility. Reeves is now at the centre of a full-blown crisis in relations between Downing Street and Labour MPs. The Chancellor – more than any other member of the Cabinet – is being blamed for the shambles. Some MPs have privately said they 'hate' her. Now the Chancellor's critics within her own party are growing ever louder. Worryingly for Reeves, they include a number of ministers unhappy at her performance. In the increasingly febrile mood at Westminster, even moderate Labour MPs are now saying Starmer should sack her. If she stays, they reason, she will worsen the PM's poll ratings – languishing at an abysmal 46 per cent in the latest YouGov survey. But would Starmer have the guts to ditch his Chancellor barely a year after their landslide general election victory? Absolutely not – and the reason why, I can reveal, is breathtakingly cynical. One senior party figure tells me: 'Number 10 needs her. She is absorbing all the blame for our problems, and therefore diverting it from the PM. 'Whether it's in the rural areas over her decision to bring in inheritance tax for farmers, or with pensioners over winter fuel, it's Rachel's name that comes up on the doorstep every time, not Keir's. 'Keir is an anonymous figure at Parliament. We rarely see him and he's never in the division lobbies, while Rachel is there all the time. She's receiving huge flak from her own colleagues.' But my source also warned fellow Labour MPs: 'Have we learnt nothing from the Tory years? They went into the last election a shattered force and suffered their worst ever defeat.' While few MPs expect Reeves to be sacked or even demoted in the short term, the next big test could be the autumn Budget. Reeves set herself two new fiscal rules in the last Budget: pledging to balance day-to-day spending with tax receipts and to get public debt down as a share of the economy. Another source says: 'The PM may order her to change the rules to avoid tax rises. It could lead to a showdown. If she refuses, she goes. If she agrees to change them, her last scrap of respectability is gone and she will be a lame duck. If taxes go up, it's hard to see how she could limp on for much longer.' After the Budget, Labour faces the Welsh Assembly and Scottish Parliament elections in May. Reform are expecting to capture Wales, a traditional Labour stronghold. A senior government figure says: 'If the local elections are a disaster, Keir will need to blame someone. There'll be yet another 'reset' and I think he'll throw Rachel under a bus if he hasn't already. He will pledge a new direction with a new Chancellor.' The favourite would be Pat McFadden, the dour Cabinet Office minister. But if Tuesday's vote is dramatically lost – now thought to be unlikely after the rebels won a raft of concessions – Reeves would be in dire trouble, as in fiscal terms the Government would be holed below the waterline. Reeves' own political hero is Gordon Brown. She will no doubt be aware of his infamous quip that there are two types of Chancellor: those who fail and those who get out just in time. A mere 11 months after she entered the Treasury, most Labour MPs – to say nothing of the country at large – have already decided which one of those she is.
Telegraph
16 hours ago
- Business
- Telegraph
Reeves expected to extend stealth raid on income tax
Rachel Reeves is expected to freeze income tax thresholds in her autumn Budget to fill a £40 billion black hole. The Chancellor has been put under pressure by three policy U-turns by Sir Keir Starmer, which are set to increase public spending by about £4 billion later in the year. Some within the Labour Party believe she may not survive the year if she is forced to raise taxes and impose further cuts at the same time. The latest policy reversal, on benefit cuts, will mean the Government will save just half of the £5 billion it hoped to recoup from sickness and disability payments. But Ms Reeves has left herself with few options to raise funds. As well as committing not to increase the rates of income tax, National Insurance or VAT, nor to raise corporation tax, she has insisted she will not break Labour's fiscal rules. Freezing the threshold for the additional rate of income tax was one of the suggestions in a memo from Angela Rayner, the Deputy Prime Minister, to Ms Reeves which was leaked to The Telegraph last month. The current freeze, which was due to be lifted in 2028, dragged seven million people into higher tax brackets last year, raising around £15 billion. Paul Johnson, the director of the Institute for Fiscal Studies, an independent think tank, said a further freeze in thresholds would be 'pretty high up the attractiveness scale' in this year's Budget. 'I think it's fairly likely, as a politically easy way to raise something of the order of £10 billion in additional revenue by the end of the Parliament,' he told The Telegraph. One Labour MP said the Chancellor was now 'in deep trouble' because she has already ruled out several of the easiest ways to raise revenue. 'It's hard to forgive her for where we are now. She locked herself in, foolishly, to a set of commitments that have become unsustainable,' the MP said. The Treasury was already facing a black hole of between £20 billion and £30 billion because of lower-than-expected growth forecasts, partly driven by Donald Trump's imposition of tariffs. The £4 billion cost of Sir Keir's U-turns is expected to be compounded by a revision to the Office for Budget Responsibility's (OBR) medium-term productivity forecast this summer and growth forecast this autumn, which could have an impact on revenues of between £7 billion and £8 billion. This week's decision to maintain benefit payments for existing claimants has cost the Treasury £2.5 billion, while the U-turn on winter fuel payments for pensioners cost a further £1.25 billion. Ms Reeves is facing backlash from Labour MPs over her proposal to cut benefits, which was designed to bring down the cost of welfare at the expense of thousands of claimants. Sir Keir, who watered down the measures to avoid the biggest rebellion of his career, insisted that his 'common sense' welfare reforms now strike 'the right balance'. But the situation leaves the Chancellor with little choice but to freeze income tax thresholds, which were due to rise in line with inflation from 2028. The policy would likely raise around £8 billion a year in tax receipts, but would cost a worker earning on an average salary thousands more in income tax by the end of the decade. Independent economists say a further freeze in the autumn is now all but certain, and that further increases on smaller taxes or a new raid on pensions could be required to make up the shortfall. Downing Street refused to rule out further tax rises on Friday, with a spokesman saying: 'As ever, as is a long-standing principle, tax decisions are set out at fiscal events.' However, Ms Reeves's team remains optimistic that good economic performance between now and the Budget will reduce the £105 billion cost of servicing government debt, which currently accounts for 8.2 per cent of public expenditure. The Bank of England is widely expected to cut interest rates at its next meeting on Aug 7, although gilt yields are not directly determined by the base rate. Treasury officials also hope that the cost of energy will continue to fall, although it is acknowledged that instability in the Middle East could drive up the price of crude oil once again. Ms Reeves is adamant that she will not break her fiscal rules – to increase public sector borrowing as a percentage of GDP or raise money on the markets to fund day-to-day spending – and believes that maintaining market stability should be the Government's primary goal. Balancing the books with a stealth tax on income has been a favoured policy lever of successive chancellors. The current freeze to 2028 was introduced by Sir Jeremy Hunt in his 2022 Budget. But the policy results in more people paying higher rates of income tax as their wages increase – an economic phenomenon known as fiscal drag. OBR figures show that in 2024-25, some £15.3 billion extra was due to be raised thanks to the frozen thresholds. In the same year, the OBR predicted that the total welfare bill was set to shoot up by £16.6 billion. Figures released on Thursday show that seven million people have been dragged into paying higher rates of income tax as a result of the stealth raid on wages. Frozen thresholds forced an extra 520,000 taxpayers into the 40p bracket in the last year, according to estimates by HMRC. It brings the total to just over seven million in 2025-26, a 60 per cent rise from the 4.4 million in 2021-22 when income tax thresholds were first frozen under the Tories. The number of 45p additional-rate taxpayers has more than doubled from 520,000 to 1.2 million over the same period. Last November, Ms Reeves told MPs she would not raise taxes again or increase borrowing and that the Government would need to 'live within the means we've set ourselves' for the remainder of the Parliament. 'We're not going to be coming back with more tax increases, or indeed more borrowing,' she told the Treasury select committee.
Daily Mail
17 hours ago
- Business
- Daily Mail
Tax hikes Reeves could impose after the £3bn benefits U-turn
Households are on alert for further potential tax hikes in autumn after Keir Starmer handed major concessions to rebels in a bid to salvage flagship legislation on health and disability benefits. On Friday, the government confirmed a U-turn on its cuts to disability benefits in order to avert a rebellion by more than 120 Labour backbenchers. The reversal leaves a £3billion hole in Chancellor Rachel Reeves ' financial plans, according to the Institute for Fiscal Studies. Meanwhile, the Resolution Foundation warned that tax rises may be needed for her to now meet her fiscal rules. The initial benefit reforms would have saved the government £5.5billion by the end of the Parliament. The planned cut to personal independence payments eligibility was set to raise the bulk of this saving, £4.5billion. However, according to the IFS, the revised package of reforms will save only £2.5billion, so will cost the government £3billion relative to their previous plans. Under the change in tack, people who currently receive personal independence payments (PIP), or the health element of universal credit, will continue to do so. Instead, planned cuts will now only hit future claimants. Liz Kendall, Secretary of State for Work and Pensions, said: 'We have listened to people, we are in a good place now'. Most economists and think tanks think tax rises in the Autumn Budget 2025 are now inevitable. Tom Waters, an associate director at IFS, said: 'These changes more than halve the saving of the package of reforms as a whole, making the Chancellor's already difficult Budget balancing act that much harder. 'The decision is to protect existing health-related benefit claimants from the reforms, thereby making the savings entirely from new claimants to these benefits. 'This will create big differences – thousands of pounds a year, for many years in some cases – between similar people with similar health conditions who happen to have applied at a slightly different time.' Samuel Mather-Holgate, an independent financial adviser at Mather and Murray Financial told Newspage: 'With Starmer doing more U-turns than someone doing the bleep test, taxes are going up. 'There's no way that other departments can mitigate these changes to their budget.' Which taxes could be increased? Reeves has ruled out taxes on the working people, including income tax , National Insurance for employees, VAT and corporation tax. Other taxes will be in her sights. Capital gains tax Higher capital gains tax could be one option for Reeves. Capital gains tax is levied on profits from assets ranging from shares to second homes, buy-to-let properties and personal possessions. The rates for stocks and shares gains were hiked in the 2024 Autumn Budget to 18 per cent for basic rate taxpayers and to 24 per cent for those paying higher rates of tax. The profits from assets like sharers tend to come from people taking a risk, whether an entrepreneurial one or an investment one, making capital gains tax a likely target for hikes. Inheritance tax Reeves could have inheritance tax in her sights again It is a growing money-spinner for the government, with the number of households falling in scope for it rising. In the 2024 Autumn Budget, Reeves capped the availability of Business Relief and Agricultural Relief, and halved the relief available on Alternative Investment Market shares. Reeves also unveiled plans to bring pensions into the scope of inheritance tax from 2027. Further tweaks and amendments could happen. Pensions Pensions are a major source of wealth for many people, making them a prime target for Reeves. Last year, while Reeves dragged unused pension assets into the inheritance tax net from April 2027, she did not go as far as some experts feared. That is not to say that she will not meddle with pensions later this year. HMRC recently announced a consultation on salary sacrifice - when people forgo a pay rise or bonus and add to their pension instead, which helps avoid higher marginal tax rates. It has prompted speculation that Reeves could introduce a cap on the amount of salary sacrifice people can use. There is also speculation about the reintroduction of the pensions lifetime allowance. The Chancellor could also look at reforming income tax relief on pension contributions. Tax thresholds freeze The freeze on certain tax thresholds since 2021 has created a huge stealth tax raid in recent years. The frozen basic rate threshold, currently £12,570, drags more people into paying income tax and means that the real value - adjusted for inflation - of the tax-free allowance has been diminished. Stalling the higher rate threshold at £50,270 has shifted more people and a greater slice of earnings into the 40 per cent bracket. John Woolfitt, a director at Atlantic Capital Markets, told Newspage: 'A "stealth tax" manoeuvre will be high on the cards. 'Income tax allowance and the higher-rate threshold currently rise with inflation . Freezing or delaying future increases effectively raises income tax, without officially having to announce a hike.' He added: 'Targeting high earners and wealth transfers could also be seen and a populist move as the government tries to sure up support from the broader electorate.' According to the Resolution Foundation, extending the freeze in personal tax threshold by one year will save £4billion a year, 'though further consolidation is likely to be needed in the Budget this Autumn.' Property Businesses Higher employer national insurance contributions are already hammering businesses across Britain. However, under growing pressure to boost the Treasury's coffers, Reeves could set her signs on corporation taxes, VAT exemptions or other duties. 'This would really impact the already fragile business confidence in the UK', Woolfitt said. Wealth tax Some campaigners believe Reeves should impose a wealth tax to boost the tax-take and quash inequality. Tax Justice UK is calling on more taxes for the super-rich to be introduced by the current Government. It wants to see a 2 per cent wealth tax on assets over £10million, which it says will raise up to £24 billion a year. It also wants to apply national insurance to investment income, close inheritance tax and non-dom loopholes, and introduce a 4 per cent tax on share buybacks. It remains unclear whether a wealth tax is on Reeves' agenda and how it would work in practice. An unprecedented 16,500 wealthy Britons are predicted to leave this year amid higher taxes and a gloomy economic outlook.
