There is no better time for the new Government to raise taxes

Patrick King, tax partner at MHA comments on the options for the Chancellor as the 30 October Budget date is announced:

With a huge majority, in a honeymoon period with the public and having made it clear who is to blame, there is no better time for the new Government to take potentially unpopular decisions in the Autumn Budget which we now know is 30 October. Dire warnings have been given by various bodies that whoever won the election there would need to be tax rises or spending cuts and it shall be interesting to see which way Reeves chooses to jump. The likelihood is she will need to do both.

During the recent election campaign, the Labour leadership made a great play of pledging not to raise the headline rate of income tax, national insurance or VAT. That doesn’t mean of course they can’t tinker at the sidelines of all of these by say removing zero rated VAT status in other areas beyond private school fees or extending the freeze on income tax thresholds. That said Labour made much of the fact that under the Tories we now have the highest tax burden since the end of WW2, so it seems reasonable to conclude they do not intend to significantly raise the headline rate of these taxes.

There is considerable speculation already that Rachel Reeves will take a detailed look at capital gains tax, pensions tax relief and reforming inheritance tax. Given the relatively small size of the population that would be impacted and the money it could raise there is no doubt it would play well with the Labour core vote and their backbenchers in the House of Commons.

Could she decide to move CGT to the same rates as income tax? This seems unlikely to me as the tax take from CGT has risen steadily over the last few years despite the relatively benign rates. If the current CGT rates were increased to the same level as income tax rates, we would likely see a drying up of investment and a reduction in the tax take, none of which would help the economy or the country’s finances. A modest increase in the rate is perhaps more likely potentially to the 30% which subsisted for many years prior to 1997.

Revisions to some aspects of Agricultural Property Relief and Business Property Relief seems possible to “better focus” these reliefs to make it harder for them to be available as part of structured investment products, or perhaps to negate relief on the value of any “non trading” part of a company that otherwise qualifies.

As for pensions, any major change here would likely be very hard to implement without consequences to public sector pensions and a significant reduction in tax relief will likely be bad for the stock market given the large portion of investment that comes from pension firms.

There are a growing list of promises on public sector pay and housebuilding commitments to name but two that will have to be paid for. The Government can talk about halting infrastructure projects, cutting spending on consultants and empowering HMRC to crack down on tax evasion and there is no doubt the UK economy is finally picking up, but the reality is that many of us will feel the burden of extra taxes come October.”