Rachel Reeves could close the UK's looming spending gap by reforming pension tax relief and council tax, targeting wealthy baby boomers. The chancellor currently gives away over £50bn in pension tax relief, most of which benefits wealthier savers who would save anyway.
A remodelling of pension subsidies, cutting the higher 40p relief to a flat 25p, could claw back £10bn to £20bn. Reducing or scrapping the tax-free lump sum allowance could also raise significant revenue. Fears of reform have already triggered a rush of older savers withdrawing cash, with £18.1bn taken out in the year to March, up from £11.25bn.
Alongside pension changes, overhauling council tax based on current property values could raise up to £10bn. Economist John Muellbauer proposes a 0.5% levy on expensive homes, replacing bands G and H, which would tax a £10m home at £50,000 instead of £3,000-£4,000. The shift would require valuing 1.1m homes, easier than a full revaluation.
However, there is a lack of agreement among think tanks and academics on which taxes to reform, and the Treasury lacks clear direction. Reeves, one of the few senior ministers to remain in her post after the reshuffle, needs bold, outmoded tax reforms to balance public finances.
