In a significant shift of fiscal policy, Chancellor Rachel Reeves is poised to abandon a planned increase in income tax in the upcoming Budget.
A Taxing U-turn: From Income to Property
Instead of raising income tax, the Chancellor is now expected to introduce a new levy specifically targeting high-value properties. This move is anticipated to primarily affect homeowners in London and the South East of England, where property values are highest.
The proposed property tax represents a major strategic pivot for the Treasury, attributed to more favourable economic forecasting which has provided greater clarity on the public finances.
The Fine Print: Threshold Freeze and Revenue
Alongside the new property levy, the Chancellor is also set to extend the existing freeze on income tax thresholds. This freeze, which was due to end, will now be prolonged for an additional two years, keeping the thresholds in place until 2030.
This measure alone is a significant revenue raiser for the Treasury. The extended income tax threshold freeze is projected to generate approximately £8 billion annually, helping to plug gaps in the public purse and create more fiscal headroom for the government.
Expert Concerns and Economic Implications
However, this new approach has not been met with universal approval. The influential Institute for Fiscal Studies (IFS) has voiced concerns about the strategy. The IFS warns that a reliance on smaller, more varied taxes could prove more damaging to long-term economic growth.
Furthermore, the think tank suggested that such a move might signal a reluctance by the government to make broader, more politically difficult decisions on taxation and spending. The focus on a property tax concentrated in certain regions also raises questions about its geographic impact and fairness.
The final details of the Budget, including the specific rates and thresholds for the new property levy, are expected to be confirmed when the Chancellor addresses Parliament.
