The Chancellor said the fallout had been “damaging” after the Government reneged on its plans to restrict eligibility for the personal independence payment (PIP) in the face of a backbench revolt.
Appearing to confirm the tax rises, Reeves told The Guardian it would be “irresponsible” to rule anything out and warned “there are costs to what happened” with the welfare bill.
With tax rises looking ever likely in the autumn, The i Paper takes a look at some of the levies the Government may use to balance the books.
But increasing income tax would break a major manifesto commitment. Labour throughout the general election last year, pledged not to raise taxes on “working people”. One way to get around this politically may be to extend the freeze on income tax thresholds again. The Treasury would need to hope that enough wages rise with inflation to drag more taxpayers into higher tax bands, so they end up contributing more.
Rachel Reeves and Sir Keir Starmer were forced to U-turn on welfare reforms under pressure from backbench MPs (Photo: Jack Hill/AFP)A two-year extension of the higher rate freeze could yield around £8bn a year by 2029-30. But the Government may now seek to freeze all tax brackets to plug the gap.
Corporation tax
The changes meant employer contributions increased from 13.8 to 15 per cent the threshold for contributions has dropped, meaning businesses now begin paying the tax once a salary hits £5,000 instead of £9,100.
Reversing the Rishi Sunak Government’s cut to the bank surcharge from 8 per cent to 3 per cent should raise around £1.5bn.
A £500 dividend allowance also means individuals only pay tax on any dividend income above this. Removing this allowance would create around £325 million a year, HMRC data suggests.
Pensions
Sunak’s Government also abolished the standard lifetime pensions allowance last year – something many within the Labour ranks have called to be reinstated, including Labour. The allowance puts a cap on how much savers can put into their pension pot before a higher rate of tax is applied.
A leaked memo from Angela Rayner’s department ahead of the spring statement in May called for Reeves to freeze the highest income tax threshold (Photo: Chris Jackson/Reuters)
Boris Johnson and his then-Chancellor Sunak in 2021 introduced plans for a new health and social care tax to pay for reforms to the care sector and NHS funding in England. The Government at the time said this would raise £12bn a year, and initially would work as a 1.25 percentage point in National Insurance.
Wealth tax
A similar new levy may be to install a wealth tax, something the left of the Labour Party has repeatedly called for.
Rayner, in the same leaked memo to her threshold suggestion, also suggested a £4bn a year wealth tax.
ISA allowance
Reeves has long been expected to cut the annual tax-free cash ISA allowance in her Mansion House speech this month, with plans in the offing well before last week’s welfare bill climbdown.
The reduced cash allowance could be reduced to as little as £4,000 a year.
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