In a secret memo to the Chancellor seen by The Telegraph, the Deputy Prime Minister called for eight tax increases, including reinstating the pensions lifetime allowance and changing dividend taxes.
Some of the proposals would raise taxes by £3bn to £4bn a year, according to estimates cited in the document. Other policies did not come with estimates.
Angela Rayner’s memo reportedly came before Chancellor Rachel Reeves delivered her Spring Statement (Photo: Rasid Necati Aslim/Anadolu via Getty Images)
The allowance had placed a limit of about £1 million on how much could be saved in a pension without incurring higher tax charges.
Thomas Pugh, an economist at financial services firm RSM UK, said the £4bn tax increase was “not nothing” but “is clearly not going to make a major difference”.
Mr Pugh added: “Some of the measures such as ending inheritance tax on Alternative Investment Market shares and restoring the £1m lifetime pension allowance could create some quite distortive side effects, such as discouraging senior doctors from working extra shifts.”
“It would reopen wounds that have only recently healed in the NHS, hitting doctors and consultants hard, and resurrecting the problem of medical professionals refusing to take on extra work or retiring early because of the punitive tax charges,” he added.
Increase in top rate tax payers
Other proposals were to close a loophole that allows commercial property sales to avoid stamp duty if they are placed in offshore companies, and raising the rates on dividend taxes so they are close to income tax rates.
Extending the additional rate income tax threshold freeze would raise £1.83 billion in 2029-30, rising to £2.03 billion by 2033-34, according to the wealth management company Quilter.
He said: “Extending the freeze on the additional rate tax threshold could lead to a substantial increase in the number of taxpayers subject to the top rate.
“The combination of higher taxes and reduced allowances may discourage individuals from seeking higher earnings, potentially impacting overall economic growth.”
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Another change was to end inheritance tax relief on shares for the Alternative Investment Market (AIM), which helps smaller companies to access capital.
Jason Hollands, managing director at wealth manager Evelyn Partners, described Ms Rayner’s proposals as “a tax-hikers’ wish list rather than a coherent plan”.
He said: “If that relief were yanked away entirely, I would expect more business owners to exit the UK and relocate to more attractive tax jurisdictions.
He warned that the changes could lead to lower tax receipts than the Deputy Prime Minister estimates as people change their behaviour to avoid the bills.
She said more tax rises are “starting to feel inevitable” and the “Chancellor’s fiscal predicament will only get worse later this year”.
Ms Gregory said Reeves is already dealing with higher US tariffs, which are expected to hurt economic growth, and public spending pressures such as a £17bn increase in the defence budget.
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