How do you fix a problem like a £22 billion black hole in public finances?
Few will envy the task at hand when Labour Chancellor Rachel Reeves attempts to do just that in her debut Autumn Budget on Wednesday.
Labour finds itself stuck between sticking to manifesto pledges (no income tax, National Insurance and VAT increases) while making painful decisions that will inevitably anger certain subsets of the voting population.
Rumours have come thick and fast ahead of the Budget. Below, we have outlined the key things to keep an eye on.
1. Inheritance tax
Chief among the so-called ‘wealth taxes’, IHT is a leading candidate for a shake-up.
The base £325,000 nil-rate band is unlikely to change given the current free until 2028, but as has been mentioned, there are many levers that the government can pull to push up IHT receipts.
These include removing the spousal exemption, the pensions exemptions and even the AIM stocks exemption.
Labour will have to tread carefully with any IHT shake up- despite only applying to around 5% of estates, this ‘death tax’, as it is pejoratively called, is commonly cited as Britain’s most-hated tax.
Read more: Engorged inheritance tax pot more than likely as borrowing surges
2. Capital gains tax
Another ‘wealth tax’, Labour reportedly has an increase in capital gains tax in its sights.
According to a recent article from The Times, the government could increase the CGT rate on share sales by several percentage points while keeping CGT paid on the sale of secondary homes unchanged.
The current rate is 10% CGT for basic-rate taxpayers and 20% for higher-rate taxpayers.
Certain ‘patriotic millionaires’ have called for a CGT increase to help bolster public finances.
Read more: Labour reportedly plotting capital gains hike on share sales
3. North Sea windfall tax
The UK North Sea windfall tax, officially known as the Energy Profits Levy (EPL), taxes the excessive profits of oil and gas companies operating offshore.
It was first introduced in May 2022 at a rate of 25% before rising to 35%, bringing the total tax burden on North Sea oil and gas producers to 75% when combined with the existing 40% corporation tax on profits from oil and gas extraction.
Reeves has already confirmed a three-percentage-point increase in the EPL which will bring North Sea producers’ total tax burden up to 78%.
Offshore Energies UK has warned that this policy will decimate long-term investment in the sector and could lead to greater losses than supposed benefits.
Also on the energy front, Reeves is expected to remove pensioners’ Winter Fuel Payment allowance for millions of pensioners.
Read more: North Sea tax plans will cost £13bn, lobby group claims
4. Pay-per-mile tax
This little-discussed policy gained traction after the Tony Blair Institute threw its weight behind the idea.
The basic concept is to apply a pay-per-mile (PPM) charge of 1p per mile for all cars and vans and between 2.5p and 4p per mile for heavier, more polluting vehicles.
It intends to tackle an existential problem for successive UK governments- as the switch to fully electric vehicles mobilises, public finances could lose up to £30 billion every year as the fuel tax becomes redundant.
A PPM tax will also help to reduce congestion, which costs up to £120 billion per year in inefficiency and delays, according to the TBI.
Labour has yet to voice any support for a PPM tax.
Read more: Exit left for nearest road tax
5. Pension tax
Speaking of political hot potatoes, the government is reportedly mulling reducing the tax-free pension withdrawal limit.
Currently, UK pension holders can withdraw up to 25% of their pension pot tax-free, with a cap of £268,275, but reports suggest this could be cut as far down as £100,000.
Some think tanks, including the Institute for Fiscal Studies (IFS) and the Fabian Society, argue the higher limit favours wealthier people.
As an aside, Bank of England governor Andrew Bailey has warned against forcing pension funds to allocate a certain percentage of their funds to UK-based companies.
Reeves’ Tory predecessor Jeremy Hunt floated the idea as a way of stimulating growth in the UK.
Bailey said he would not “for a moment” support the idea of forcibly making pension funds back British companies.
As another aside, Reeves is said to be exploring raising National Insurance Contributions (NICs) on employer pension contributions.
Read more: Chancellor mulling Budget tax-free pension withdrawal cut
6. Banking tax
Perhaps one of the more digestible potential tax hikes among the British public, increases to sector-specific banking taxes could feature in the Budget.
This could come in the form of a higher bank levy, or a higher bank surcharge.
The levy, which was introduced in 2011 to reduce risky funding models after the 2008 financial crisis, is charged on the balance sheet equity and liabilities of banks, meaning it does not depend on profits.
The surcharge was introduced in 2016 as a windfall on the sector’s profits.
Banks are already among the highest taxpayers in Britain and the total tax rate (TTR) for British banks is among the highest in the world.
But if it is deemed politically expedient, then the banks could find themselves shouldering even more of the burden from next Wednesday.
Read more: What are the odds of a banking tax hike?
7. Non-doms
The UK non-domiciled tax regime allows individuals who are UK residents but not domiciled (their permanent home is abroad) to benefit from certain tax exemptions.
These exemptions are likely to be stripped back, given that a crackdown on non-doms was a key part of Labour’s election manifesto.
According to government data, there were around 83,800 non-doms registered in the UK at the end of the 2023 tax year.
Despite being a niche regime, it has attracted substantial press coverage.
Right-wing think tank the Adam Smith Institute urged against creating a “hostile culture for wealth creators" that could see Britain’s millionaire population fall by 20% over the next five years.
That is unlikely to sway Labour’s intentions.
Read more: Chancellor urged to rethink non-dom proposals as millionaire exodus predicted
8. Stamp duty
Reeves is reportedly set to scrap existing stamp duty exemptions put in place by short-lived Tory Prime Minister Liz Truss.
Truss increased the nil-rate threshold for first-time buyers from £300,000 to £450,000 and from £125,000 to £250,000 for movers.
This is set to expire in March 2025, with the likelihood of Reeves not extending the programme quite high.
Read more: Housebuilders fall on reports of Budget stamp duty exemption end
9 and 10: Hospo rates relief and the tourist tax
Retailers and hospitality leaders have piled pressure on Reeves to address two big issues facing the sectors.
They are lobbying for the abolishment of a controversial ‘tourist tax’, or more specifically, the reintroduction of a tax-free shopping scheme that was abolished in 2020.
Removing the scheme was tantamount to a "spectacular own goal" for the UK economy, said a coalition of business leaders from retail, hospitality, tourism and arts sectors.
Hospitality bosses are also calling on Reeves to commit to offering business rates relief for the hospitality sector.
The hospitality sector has benefitted from a 75% rate discount for the past three years, but that is set to expire in March 2025.
Industry body UKHospitality has called this deadline an “almost billion-pound tax bombshell”.