Latest news with #taxhikes
The Independent
20 hours ago
- Business
- The Independent
What can Rachel Reeves do to pay for Starmer's welfare U-turn?
Taken together, the cost to the public finances of recent reversals on welfare payments is estimated to be around £4.5bn. Restoration of the pensioners ' winter fuel payment for most recipients will cost some £1.2bn, while keeping the present arrangements on personal independence payment and the health element of universal credit will mean the chancellor loses some £2.1bn and £1.1bn, respectively. While these aren't catastrophic changes in a total public spending universe of about £1.3 trillion, Rachel Reeves allowed herself very little fiscal headroom. So she'll be looking to make up for the cost of the recent U-turns. Given that she's only just delivered a spending review that set out plans for the next three years, including tighter budgets for many government departments, she is reportedly more willing to consider tax hikes. The uncertain outlook for economic growth will make her even more cautious. Despite constraints, she has some options… What won't Rachel Reeves do? All the signs are that she won't make any further changes that could be interpreted as a direct contravention of the 2024 general election manifesto promise: 'We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT.' The 2 per cent hike in employers' national insurance at the last Budget hit smaller businesses quite hard, and will affect wage rises, so it was very close to the letter of that pledge. She's not going to go there again. But bear in mind that the freeze on tax thresholds will remain in place until 2028 – a hidden rise in income tax for many. Is anything else ruled out? Lots: there's a whole herd of sacred cattle that she can't touch, politically. These include the rate of corporation tax, about which the manifesto says: ' Labour will cap corporation tax at the current level of 25 per cent, the lowest in the G7, for the entire parliament'. Slapping VAT on zero-rated items is effectively ruled out, as are increases in most other business taxes. There's zero chance of any further capital gains tax being applied to homeowners, which would make eminent economic sense but would be electoral suicide. Reeves may also have run out of scope for squeezing rich non-doms – for fear of ending up with lower tax revenues due to flight and increased avoidance. Council tax procedures are being tweaked, but there is little chance of any thorough reform of the eccentric system of local government finance; memories of the imposition of the poll tax remain raw, almost four decades on. The big picture here is that the UK tax base is artificially narrow, for historical and political reasons. For example, personal taxation in the UK is still low by international standards, even when the overall tax burden is near a post-Second World War high, but UK business rates are correspondingly high and uncompetitive. Wealth is taxed marginally and haphazardly. This is bad for long-term growth, and every year means taxes are loaded too high onto a too-narrow base. What is an easy hit? Capital gains tax, as usual, but again Reeves will need to be careful not to go too far and risk discouraging savings and encouraging avoidance. The same goes for changing the rules on personal pensions: higher-rate tax relief on contributions and reducing the tax-free allowance for a cash withdrawal from a pension pot. Given the need for orderly retirement planning, radical changes would be undesirable and unpopular. But there could be adjustments. Will petrol go up? It certainly should. Unbelievably, fuel duty has been frozen since 2011, at 57.95p per litre, with an additional 5p per litre 'temporary' cut in 2022 to ease the cost of living crisis. Technically, this is due to be ended next year, with the duty now scheduled to rise. For Reeves to raise more than planned she'd have to up it by, say, 10p per litre. It would raise enough to pay for the U-turns, but would attract the scorn of the motorist and 'white van man'. The wider problem here is that the switch to electric vehicles is already depressing fuel duties. Sin taxes? Alcohol and tobacco are mostly maxed out, but there's still some scope with online gambling and duties on sugary and fatty foods. The sugary drinks levy worked very well on health grounds alone, but any 'tax on food' has always been anathema to the British public (albeit VAT is levied on confectionery). Reeves will also be mindful of the great 'pasty tax' fiasco of 2012 when George Osborne tried to make some rational changes to the VAT regime, including on 'ambient' takeaway food. His 'omnishambles' Budget soon collapsed, and Greggs customers have steadily got flabbier in the succeeding years. Rachel will be steering clear. What does the Labour left want? A wealth tax: a 2 per cent levy for those with assets in excess of £10m. No chance. What about a tax on interest the Bank of England pays the banks on deposits? That does crop up as a suggestion. It's very abstruse stuff, but this basically boils down to another tax on the commercial banks. It isn't paid by 'rich bankers' as such (though it might dent some bonuses) but by the banks themselves. Other things being equal, it would mean lower returns for savers, less availability of business finance and mortgages, and a less resilient banking system. The Bank of England says it could make managing monetary policy more difficult. But it could reduce the cost of borrowing to the Treasury by maybe £10bn a year. The chancellor may find the temptation irresistible.
Daily Mail
a day 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.
Daily Mail
a day ago
- Business
- Daily Mail
The tax hikes Rachel Reeves could impose to plug the benefits U-turn £3bn hole
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 Further tax changes linked to buying and selling property could be introduced. Last year, Reeves introduced a 2 per cent increase to stamp duty for second home owners. Future stamp duty hikes could target owners of multiple properties or high-value property transactions. 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.
The Independent
a day ago
- Business
- The Independent
Starmer's benefits U-turns will cost £4.5bn, warns influential think-tank
Sir Keir Starmer 's U-turns on benefit cuts and winter fuel payments have blown a £4.5bn hole in the public finances that will need to be filled with tax hikes or deep spending cuts elsewhere, a top economic think tank has warned. The prime minister 's climbdown over his welfare bill is even bigger, and far more expensive, than expected, Resolution Foundation analysis found. And, combined with last month's U-turn on winter fuel payments, Sir Keir will now need to find almost £5bn ahead of his chancellor Rachel Reeves ' autumn Budget. The Resolution Foundation said the change to Sir Keir's welfare bill, which will protect all those currently receiving personal independence payments (Pip), the main disability payment, will prevent 370,000 from losing the support. That will cost £2.1bn per year by 2030, while protecting the income of all those receiving the health element of universal credit, affecting 2.2 million people, will cost up to a further £1.1bn each year. It wipes out up to £3.2bn of the £5bn the government had hoped to save through the changes. The Institute for Fiscal Studies had warned the U-turn would cost around £1.5bn, which wold have to be funded by tax hikes or spending cuts elsewhere. And, on top of the £1.3bn decision to reinstate winter fuel payments for 7 million pensioners, Sir Keir's month of U-turns has left him grappling with the £4.5bn black hole in the public finances. Care minister Stephen Kinnock was asked how the government will pay for the changes, but refused to 'speculate'. He said the chancellor would confirm how the U-turns will be funded when she delivers her Budget in the autumn. It comes after Sir Keir made major concessions to Labour MPs plotting to thwart his controversial welfare bill. In a late night climbdown, the PM offered to protect Pip for all existing claimants and promised a review of the Pip assessment to be led by disabilities minister Sir Stephen Timms and "co-produced" with disabled people. A Number 10 spokesperson said: "We have listened to MPs who support the principle of reform but are worried about the pace of change for those already supported by the system. "This package will preserve the social security system for those who need it by putting it on a sustainable footing, provide dignity for those unable to work, support those who can and reduce anxiety for those currently in the system." Dame Meg Hillier, one of the leading rebel voices, described the concessions as "a good deal" involving "massive changes" to protect vulnerable people and involve disabled people in the design of future reforms. She said: "It's encouraging that we have reached what I believe is a workable compromise that will protect disabled people and support people back into work while ensuring the welfare system can be meaningfully reformed." Some Labour rebels are sticking to their guns and will still vote against the bill on Tuesday, but it is likely now to have enough support to pass the Commons. He had been facing a humiliating defeat, with more than 120 Labour MPs having signed a rebel amendment seeking to kill the bill. As well as blowing a major hole in the government's spending plans, campaigners warned the chaotic U-turn sets up a two-tier system for Pip claimants, where those on the new system face different criteria to those already receiving payments. Ruth Curtice, chief executive of the Resolution Foundation think tank, told BBC Radio 4's Today programme: 'It's certainly the case you will have two recipients with the same scores on Pip assessments, one will be eligible and one won't be under this system for a period of years. "On the other hand, it is not unusual to introduce changes to the disability benefits system this way, where there are some more protections for existing recipients and that is not just a political question, I think it is also the case that losing substantial amounts of money can have a bigger impact on families."
Daily Mail
a day ago
- Business
- Daily Mail
Tax alert after Starmer caves to Labour benefits revolt: PM says NO current health or disability claimants will lose money to save Bill - blowing another multi-billion pound hole in Rachel Reeves' plans
Brits are on high alert for tax hikes today after Keir Starmer caved into a massive Labour revolt on welfare. The PM has handed major concessions to rebels in a desperate bid to salvage flagship legislation on health and disability benefits. More than 120 MPs had vowed to kill the plans in a crunch vote on Tuesday. But after frantic negotiations - with Sir Keir personally lobbying backbenchers - a late-night deal was announced, including guarantees that existing claimants will not lose money. The move looks like it could be enough to prevent a disastrous defeat for the government at second reading, although some critics are still vowing to oppose the measures. However, the change on Personal Independence Payment (Pip) alone is estimated to wipe £1.5billion off the estimated £5billion savings by the end of the Parliament. Rachel Reeves was already struggling to balance the books with the economy stalling and the previous U-turn on winter fuel allowance. Ruth Curtis of the Resolution Foundation think-tank warned she will not be able to find the money in existing budgets. 'That leaves only extra borrowing - which the Chancellor doesn't have much space for unless she were to change her own fiscal rules - or tax rises,' she told BBC Radio 4's Today programme. 'Yeah. Unless the government were to get better news on the economy the next time the OBR does a forecast... but when we look at everything that's happened in the world since they last did that in March our estimate is that they will actually get bad news from the OBR as well.' Asked how the costs would be covered, health minister Stephen Kinnock told Times Radio: 'The full details around what we are laying out, what I've summarised really today, is going to be laid out in Parliament, and then the Chancellor will set out the budget in the autumn the whole of the fiscal position and this will be an important part of that. 'But forgive me, I'm not in a position to set those figures out now. 'I think that is very much the Chancellor's job as we move into the budget in the autumn.' Unveiling the concessions overnight, a spokesperson for Number 10 said: 'We have listened to MPs who support the principle of reform but are worried about the pace of change for those already supported by the system. 'This package will preserve the social security system for those who need it by putting it on a sustainable footing, provide dignity for those unable to work, supports those who can and reduce anxiety for those currently in the system. 'Our reforms are underpinned by Labour values and our determination to deliver the change the country voted for last year.' The Government's original package restricted eligibility for the personal independence payment (Pip), the main disability payment in England, and limited the sickness-related element of universal credit. Existing claimants were to be given a 13-week phase-out period of financial support in an earlier move that was seen as a bid to head off opposition by aiming to soften the impact of the changes. In her letter, the Work and Pensions Secretary said: 'We recognise the proposed changes have been a source of uncertainty and anxiety. 'We will ensure that all of those currently receiving PIP will stay within the current system. The new eligibility requirements will be implemented from November 2026 for new claims only. 'Secondly, we will adjust the pathway of Universal Credit payment rates to make sure all existing recipients of the UC health element – and any new claimant meeting the severe conditions criteria – have their incomes fully protected in real terms.' She said a ministerial review would ensure the benefit is 'fair and fit for the future' and will be a 'coproduction' with disabled people, organisations which represent them and MPs. 'These important reforms are rooted in Labour values, and we want to get them right,' she said. The change in Pip payments would protect some 370,000 existing claimants who were expected to lose out following reassessment. If the legislation clears its first hurdle on Tuesday, it will then face a few hours' examination by all MPs the following week – rather than days or weeks in front of a committee tasked with looking at the Bill. The so-called 'reasoned amendment' tabled by Treasury select committee chairwoman Dame Meg Hillier had argued that disabled people have not been properly consulted and further scrutiny of the changes is needed. She said: 'This is a good deal. It is massive changes to ensure the most vulnerable people are protected… and, crucially, involving disabled people themselves in the design of future benefit changes.' While the concessions look set to reassure some of those who had been leading the rebellion, other MPs remained opposed before the announcement.
