When he was chancellor, Rishi Sunak’s Treasury would routinely leak many elements of his budgets in advance, and there has been a similar wealth of informed speculation about how, as prime minister, he can fill the estimated £60bn gap in the UK’s public finances in next week’s autumn statement.
With much fiscal misery expected, there is a benefit for Sunak and his chancellor, Jeremy Hunt, in floating possible options to gauge the reaction – and it is likely that some ideas mentioned in newspapers never make the cut. But here are some of the ideas on the table, in terms of tax rises and spending cuts, and the likelihood of them being implemented.
Stealth tax increases
Perhaps the easiest tax rise a government can make: fail to upgrade tax band thresholds in line with inflation, or at all, and the extra receipts could run into the billions. The most likely are income tax thresholds, which will bring the greatest extra income. Among the levies forecast to be subject to “fiscal drag”, as it is also known, are inheritance tax, capital gains tax and dividend tax relief.
Political impact: Would not be popular with low-tax Tories, but after the implosion of Liz Truss’s fiscal plan there is more tolerance than normal for such ideas.
Fiscal impact: There is big money at stake. While a freeze in the inheritance tax “nil-rate band” from 2025-26 to 2027-28, would raise an additional £500m, the Treasury would gain £30bn from high inflation should Hunt extend a freeze on income tax bands.
Likelihood: 4/5
Cuts to capital spending
One of the temptations in cancelling or trimming big projects is that you can write billions off the government balance sheet with a few taps of the keyboard. Furthermore, you are getting rid of something that does not yet exist, and so could be easily forgotten by voters. Projects reportedly in the Treasury’s crosshairs include the Sizewell C nuclear power station and elements of HS2 and Northern Powerhouse Rail.
Political impact: Potentially toxic, especially among MPs whose areas are affected, who will argue that long-term growth and productivity will be hurt by such cuts.
Fiscal impact: Tempting though it may be when tens of billions of pounds can be saved, delaying or cancelling big infrastructure projects, especially if they reduce the UK’s reliance on fossil fuels, will be a big blow to the future productivity and competitiveness of the British economy.
Likelihood of some cuts: 4/5.
Of scrapping a major project: 2/5
Real-terms cuts to benefits or pensions
With working-age benefits in Great Britain costing nearly £88bn a year, and spending on pensions and pension-age benefits being north of £110bn, the savings are obvious if either or both are uprated by, say, 5% rather than the current inflation level of nearer 10%. While broadly similar in approach to a stealth tax rise, it would be much more noticeable and controversial.
Political impact: Tricky, which is why there has been much speculation that Hunt will increase both by inflation. But the savings cannot be ignored.
Fiscal impact: For pensions, limiting the annual increase to the rise in earnings would save £6bn in each of the next two financial years, while working-age benefits would be £7bn lower than if they were linked to rises in inflation.
Likelihood: 2/5
Some sort of increase to the top rate of tax
Weeks after Kwasi Kwarteng announced the abolition of the 45p top rate of income tax in Truss’s ill-starred mini-budget, there is talk that the rate could now rise – though a much more likely outcome is a lowering of the current £150,000 point at which people start to pay the top rate, potentially by a significant sum.
Political impact: Kwarteng and Truss hailed the abolition of the 45p rate as removing a tax on aspiration, and some Tory MPs will deeply dislike such a move by Hunt. But as Truss found out, cutting taxes for the rich is not vastly popular elsewhere.
Fiscal impact: There are only modest gains for the Treasury from dragging more people into the 45p rate of tax. When the annual receipts from all taxpayers above £150,000 is about £2bn a year, shifting the threshold will raise only hundreds of millions of pounds.
Likelihood of a lower threshold: 3/5
Expanded windfall tax
Between campaigning to become prime minister and beginning her brief time in No 10, Truss changed her mind on Sunak’s windfall tax for energy firms, which she had initially condemned as a disincentive to invest. The version implemented under Sunak had significant opt-outs for new investments in fossil fuels, meaning Shell paid nothing despite £26bn in profits. Alok Sharma, the Cop26 president, is among those who have called for a revised version.
Political impact: Sunak has, like Truss, warned against a Labour-style windfall tax as a drag on enterprise. Much like Truss, if he does make a U-turn then it is likely to be quite popular, beyond some Tory MPs. But it doesn’t feel very Sunak-like.
Fiscal impact: There is no evidence that energy firms will cut investment if they are forced to give up some of their windfall gains. A broader tax on the industry with fewer opt-outs could see receipts increase from £5bn to £10bn.
Likelihood: 2/5
Delaying the cap in social care
This was, however imperfect in outcome, one of the flagship policies of Boris Johnson, and was due to come into force in October 2023. Some reports say Sunak wants to delay this for two years, and possibly permanently, saving up to £2bn a year. This would, however, mark yet another failure to get to grips with one of the UK’s most pressing chronic policy problems.
Political impact: Likely to cause a storm among Tory voters and thus MPs, given that the cap’s ambition of preventing older people from needing to sell their homes to pay for care disproportionately helps people in better-off areas.
Fiscal impact: Proposals for a now scrapped rise of 1.25 percentage points in national insurance contributions were to pay for increased health spending and more cash for social care, with a cap on care costs. NHS funding is secure, but social care looks like losing out again, even though older and disabled people will find themselves in hospital for longer than they need, increasing NHS bills.
Likelihood: 3/5
Changes to non-domiciled tax status
While entirely abolishing the ability of people with overseas tax jurisdiction to avoid paying UK taxes on their income – something enjoyed by Sunak’s wife for a period – seems unlikely, there is speculation about fairly significant changes, such as cutting the permitted duration from 15 to five years, potentially raising £1.6bn a year.
Political impact: Not likely to worry voters, but it could alarm plenty of non-dom Tory donors, which is a demographic the party very much does not want to fall out with.
Fiscal impact: Many of the nurses brought in from abroad claim non-dom status. They fill vacant, low-paid posts in the NHS but deny the exchequer tax receipts. The difficulties separating the good non-dom from the bad has usually scuppered changes.
Likelihood: 2/5
Increases to council tax
Not directly a Treasury tax rise, as this would be done by local authorities. But with grants to councils set to be frozen, one idea being considered is allowing council tax to go up by 3% or more without a referendum, as is needed currently.
Political impact: This would be unpopular, but as with much of George Osborne’s 2010-era austerity, outsourcing the pain to councils is tempting for the Treasury.
Fiscal impact: With councils claiming they face a £15bn shortfall going into the budget from Osborne’s austerity measures, being told again they can only recoup their losses from higher council tax bills would cripple many services.
Likelihood: 3/5
