Reeves warned against pensions tax raid or wealth tax at budget
Rachel Reeves has been warned against a tax raid on pensions and an annual wealth tax as the Chancellor weighs options to fill a black hole of at least £30bn in the upcoming budget.
The Institute for Fiscal Studies (IFS) has warned that restricting income tax relief on pension contributions “should be avoided” and reiterated its warnings against an annual wealth tax, which it said would penalize savers or increase stamp duty.
Instead, they said the Chancellor could raise tens of billions of dollars from tax reforms without breaking Labour’s manifesto promises, but urged him to avoid “half-baked fixes” to Britain’s economic woes in the Budget.
It follows reports that the government is considering a tax raid on wealthier individuals to balance the books in the November budget, amid warnings of a black hole in the public finances estimated at between £30bn and £50bn as a result of slow productivity, U-turns and higher-than-expected interest payments.
In a wide-ranging report, the IFS called on the chancellor to resist “merely increasing rates” without making further changes to the “unfair” and “inefficient” tax system.
Options recommended by IFS include:
- Capital gains termination provides tax relief upon death; This allows assets to be inherited without paying CGT on the increase in value during the deceased’s lifetime, raising £2.3bn in 2029-30.
- Council tax rates on the top two property groups have been doubled, increasing £4.4bn
- Reform death duties to remove an extra tax-free allowance of £175,000 available on transfers of primary residence to direct descendants, raising revenues of around £6bn
- Taken together, increasing bank duty and bank surcharge will lead to a total increase of £2.4bn in 2025-26. A one percentage point increase in bank surcharges would raise around £0.4bn in 2029-30, the IFS said
- Tackling mismatch to narrow the widening corporate tax gap between the amount of tax the government thinks should be paid and the amount of tax it actually collects
The think tank says it “might be possible for the Chancellor to raise tens of billions of pounds more a year in revenue without breaking Labour’s manifesto promise not to raise the ‘big three’ taxes”, but they admit it “won’t be simple”.
Ms Reeves faces mounting pressure to rescue Britain’s troubled finances in the budget, but Labor’s options are only limited as a result of the party’s manifesto pledge not to increase income tax, VAT or national insurance contributions on working people.
The IFS also called for a wider overhaul of the council tax system, arguing that banding was still based on the value of properties as of 1991 and needed to be updated to put an end to the “regressive” and “difficult to justify” rate structure.
It said a “good end goal” would be to replace stamp duty on housing and council tax with a “new, recurring property tax” proportionate to updated values.
“Changing rates and thresholds is all very well, but unless the Chancellor pursues real reform, taxpayers will bear the cost of his negligence,” says the report, which forms part of the IFS’s wider budget review for 2025.
Isaac Delestre, a senior research economist at the think tank and author of the episode, said Ms. Reeves would “fall short” if she limited her ambition to the goal of generating revenue without broader reform.
“Almost any tax rise package is likely to put pressure on growth, but by tackling some of the inefficiencies and injustices in our current tax system, the chancellor can limit the economic damage,” he said.
“The last thing we need in November is directionless interventions and half-baked fixes. There’s an opportunity here.”
“The Chancellor should use this Budget to take real steps towards a more rational tax system that is better suited to improving the welfare and well-being of taxpayers.”
Their report came after the statement made by Treasury sources. Telegram The chancellor will target those with higher incomes or greater wealth in the budget.
But Sir Keir’s cabinet is deeply divided on the issue; Senior ministers fear new measures targeting the wealthy in next month’s budget could accelerate the outflow of wealth from Britain.
Cabinet ministers said last week: Independent They believe Ms Reeves has already gone too far with measures targeting the wealthy and businesses and are calling on the chancellor to change course if she is to have any hope of achieving growth.
They said “anti-aspiration” measures such as the removal of non-Dom status and VAT on private school fees were key drivers of the movement of wealth away from the UK, saying they were “damaging this country”. Other measures reportedly being considered include a property tax on high-value homes and a new bank profits tax.
Officials are now understood to believe that the Office for Budget Responsibility will lower its productivity growth forecasts; This means an extra tax increase of £20 billion will be required.
It is thought that another £5bn will be needed to cover the government’s decision to backtrack on welfare reforms earlier this year, and another £5bn will be needed to cover higher-than-expected interest payments.
