CHANCELLOR Rachel Reeves has finalised behind-the-scenes deals with Cabinet colleagues and her officials will be sweating over drafts for her speech to the Commons when she stands at the despatch box to deliver Labour’s first Budget since 2010.
Pledges not to increase taxes on “working people” – ruling out the amount earners will pay in National Insurance, income tax or VAT – and strict limits on borrowing mean Reeves must find other ways to bring money into the Exchequer.
It’s expected this will come in the form of increasing other taxes and freezing income tax thresholds – which draw more people into higher bands if their wages go up.
National Insurance for employers
A widely expected move is for Reeves to impose National Insurance on employers’ pensions contributions, something the Treasury is said to expect will raise £15.4 billion.
Public sector workers are reportedly set to be shielded from the change, which means private businesses will bear the brunt.
Proportionally more people in Scotland work for the public sector than do in the UK as a whole, so this measure will have less of an impact north of the Border.
Those affected will be the 109,043 businesses in Scotland which employ people. These companies will now be paying more tax.
Capital gains tax
There are no official estimates for where the most capital gains tax is generated throughout the UK – however much of it is raised from taxing the assets of a small class of wealthy people.
The Institute for Fiscal Studies estimates that capital gains tax raises £15bn a year but is only paid by 1% of the population. Of that, two-thirds of the total take comes from just 12,000 individuals.
Scottish households are on average slightly less wealthy than Great Britain as a whole. According to the Office for National Statistics in 2022, the median household net worth in Scotland, England and Wales was £302,500. In Scotland by itself that was £214,000, according to the Scottish Government.
It also remains difficult to predict how changes to the rate of capital gains tax because it is paid when assets are sold, so increasing it may mean people choose to hold onto things they may otherwise have sold.
Stamp duty
Another move could be increasing stamp duty, an English tax which is paid on the purchase of homes worth more than £250,000.
It does not apply in Scotland, where the equivalent is land and buildings transaction tax.
But there could be pressure on the Scottish Government from Labour or the Greens to put up the Scottish version of the tax, called the Land and Buildings Transaction Tax, if the Chancellor increases rates south of the Border.
Inheritance tax
This is paid on estates (including homes, possessions and money) worth more than £325,000 at a rate of 40% above the threshold if it is not inherited by a spouse or civil partner or if not bequeathed to a charity or a community amateur sports club.
If the estate is inherited by grandchildren, the threshold rises to £500,000 – meaning there is a £1m tax-free allowance for couples.
People can gift money tax free if they live for another seven years and Reeves may extend this to 10.
She may also close a loophole allowing landowners to pay a reduced rate of inheritance tax.
It has also been suggested by one study that the English county of Surrey pays as much in inheritance tax as the entirety of Scotland.
Fuel duty
According to 2018 figures from Transport Scotland, 71% of households had access to at least one car or van.
Reeves might increase fuel duty – which wouldn’t matter for many Glaswegians, with Scotland’s largest city having the lowest rate of car ownership in the country.
But it would be a big blow for those in rural and suburban areas like Renfrewshire, Stirling and Aberdeenshire which have the highest rates.
VAT on private school fees
NatWest in 2020 estimated there were around 37,000 private school pupils in Scotland. In 2023 the Scottish Government said there were 705,528 state school pupils in Scotland.
Putting VAT on private school fees would therefore affect a very tiny proportion of Scottish households – less than 5%.
