As Rachel Reeves prepares to deliver her first budget on October 30, several key predictions have emerged regarding how she might tackle the £22 billion deficit left by the Conservatives.
Reeves has ruled out a return to austerity, promising real-term growth in public spending, likely funded by tax increases and selective borrowing. Here’s a breakdown of potential budget announcements:
Income tax adjustments
While the main income tax rates (20%, 40%, and 45%) are off-limits for increases, Reeves could adjust thresholds, pulling more earners into higher brackets. The Institute for Fiscal Studies (IFS) estimates that reducing the personal allowance or basic-rate limit by 10% could yield £10 billion and £6 billion annually, respectively.
Pension tax relief reform
Limiting pension tax relief to the basic rate of income tax could raise £15 billion per year. Alternatively, making employers pay National Insurance on pension contributions could generate £12 billion over five years. Such reforms would target those benefiting from 40% or 45% relief but only paying 20% tax when withdrawing pensions.
Capital gains tax (CGT) increases
Raising CGT rates or broadening the base of taxable assets could increase revenues. Aligning CGT more closely with income tax could blunt investment, but introducing inflation indexation may soften the impact.
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