People earning more than £100,000 might need to prepare for big tax hikes in the Autumn Budget, as a Labour minister refused to say these high earners were ‘working people’ in Labour’s book.
In Labour’s manifesto, Sir Keir Starmer stated that income tax, VAT and National Insurance would not increase, later adding that this only applied to working people.
“We will ensure taxes on working people are kept as low as possible,” reads the document. “Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”
However, Labour’s definition of a working person has been hard to explain, with the prime minister previously suggesting that one criterion is people with no savings. Ahead of this year’s general election, Sir Keir described working people as those “who earn their living, rely on our [public] services and don’t really have the ability to write a cheque when they get into trouble”.
Care minister Stephen Kinnock was repeatedly asked on Sky News if people who earned more than £100,000 a year were ‘working people’ under Labour’s definition, a question that he dodged multiple times in the interview by stating that he would not be drawn on Budget speculation.
“We made it absolutely clear that we won’t be raising taxes on working people, that means VAT, National Insurance and income tax,” he said.
When presenter Kay Burley said: “Even if you earn more than £100,000,” Mr Kinnock merely insisted that Labour would “not be breaking any of those manifesto commitments”.
“The Chancellor will set this out on the 30th of October. It’s absolutely clear in our manifesto. The definitions have to be seen in the round,” Mr Kinnock continued.
This comes after Chancellor Rachel Reeves previously warned that tax rises and more public spending cuts are in the pipeline for the October 30 Budget. She is currently finalising her Budget, with several drafts having been sent to the financial watchdog the Office for Budget Responsibility which will do the sums on the Labour government’s proposals to work out how much they will cost or save.
Traditionally, Chancellors make public very few details of their fiscal plans ahead of the Budget or Autumn Statement.
But some tax rises appear more likely than others. Here’s a look at what we might expect.
National Insurance on employers
In Labour’s manifesto, the party ruled out an increase to income tax, VAT and National Insurance - or did they for the latter?
It states: “We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”
Significantly, Sir Keir Starmer has left open the door to increasing National Insurance on employers, not ruling this out, and No10 is arguing that the pledge not to hike the three main revenue-raising taxes applied to “working people”.
The Prime Minister, Chancellor and other ministers have now repeatedly refused to rule out an NI increase on employers so it looks on the cards.
An NI hike on employer contributions could raise £16 billion, so is tempting, but the Tories would swiftly condemn it as a tax on jobs and a breach of Labour’s manifesto, a view shared by the IFS.
Other tax rises that Ms Reeves could go for include inheritance tax, capital gains tax and stamp duty.
Capital gains tax
The Treasury was reported to be modelling raising capital gains tax to between 33 per cent and 39 per cent.
Treasury minister James Murray has ruled out a hike to 39 per cent but not a smaller rise.
IFS director Paul Johnson, though, said any changes to capital gains tax should be a “careful reform” rather than a simple increase.
Stamp duty
Home buyers also face higher stamp duty.
The Government has not committed to extending the higher thresholds at which people start paying stamp duty.
The Tories raised the "nil rate" threshold from £125,000 to £250,000, and for first- time buyers it rose from £300,000 to £450,000.
Inheritance tax
Major reforms to inheritance tax were also reported to be being planned by the Chancellor.
Inheritance tax is charged at 40 per cent on the property, possessions and money of somebody who has died above a £325,000 threshold.
If passing on a main home to children or grandchildren it can rise by a further £175,000, taking the total to £500,000.
So for a couple, they can currently leave up to £1 million tax-free.
This levy is an obvious target for a Labour government.
But any reforms are likely to be controversial if Ms Reeves is seeking to hugely increase revenue for the Treasury from it as currently just four per cent of deaths lead to an inheritance tax charge, and it raises some £7 billion annually.
Council tax
Council tax may rise by five per cent a year, which would be around double, or even more, the rate of inflation.
Rules currently limit council tax rises to 5%, including 2% for adult social care, and a local referendum is needed to go above the overall level.
“If you kept it at five per cent in the years going forward, of course, that will be significantly higher than inflation which over the last couple of years it has not been,” says Mr Johnson.
VAT is already being added to private school fees.
The new government may have been tempted to scale back pension tax relief, currently at 40 per cent, for higher earners.
But doing so would risk hitting a key group of floating voters and governments have previously shied away from the move.
Billions of pounds of cuts to benefits will be announced, with tighter eligibility restrictions expected, to stop the welfare bill ballooning so high and quickly.
Winter fuel payments are being axed for all pensioners apart from those on pension credit.
The decision has sparked worries that free bus passes for the elderly may also be targeted.
Transport Secretary Louise Haigh says the free bus pass is staying, though, this is yet to be confirmed by the Treasury.
Labour has pledged to cap corporation tax at the current level of 25 per cent, but it could still tweak this levy to raise more revenue.
Ms Reeves is also expected to change the official definition of debt which would allow her to borrow more to invest, though this would risk accusations that Labour is not being fiscally prudent.
