UK households are bracing for a potential wave of tax increases as Labour’s Finance Minister, Rachel Reeves, navigates through challenging economic decisions. While Reeves has ruled out hikes in VAT, income tax, and National Insurance for working individuals, other tax measures are being considered to address the country’s financial situation.
Amidst growing concerns about public finances, Reeves warned that “difficult decisions” lie ahead. She emphasized the need for tough choices in her upcoming Budget, focusing on spending, welfare, and tax reforms to stabilize the economy and rebuild the nation. “Today’s figures show there is more to do in supporting people into employment because if you can work, you should work,” Reeves stated. “This will be part of my Budget later in the year, where I will be making difficult decisions on spending, welfare, and tax to fix the foundations of our economy so we can rebuild Britain and make every part of our country better off.”
One option under consideration is introducing a “stealth tax”—a tax increase not immediately apparent to the public. Experts have suggested raising capital gains tax (CGT) or increasing inheritance tax. Reeves may also consider limiting relief on certain inherited assets to generate additional revenue.
A source within Whitehall acknowledged the gravity of the financial situation, attributing the need for tough decisions to the economic legacy left by the previous Conservative government. “We are taking the tough decisions now so we can fix the foundations and deliver on the mandate of change we were elected on to rebuild Britain,” the source explained.
James Smith from the Resolution Foundation advocated for a reform of inheritance tax, citing the numerous reliefs currently allowing individuals to avoid paying the total amount. However, he cautioned that simply curbing allowances might not generate significant revenue. “You won’t raise a lot by doing that—maybe a billion or two,” Smith noted.
As the Treasury initiates a spending review process, a spokesperson reiterated the government’s commitment to rebuilding the economy and ensuring a prosperous future for all parts of the UK. The decisions made in the coming months will be critical in shaping the country’s financial landscape and determining the direction of Labour’s economic policies.
The Finance Minister has rejected the idea of increasing taxes on employed individuals, such as VAT (value-added tax), income tax, and National Insurance. However, alternative solutions are being considered.
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