New Prime Minister Andy Burnham and Chancellor John Healey face their first Budget on October 28 against a background of rapidly increasing borrowing costs, with several tax rises already confirmed and more potentially on the table.
Pressure is mounting not only from an electorate seeking help with the cost of living, but from bond and gilt markets that could squeeze the government's wiggle room and potentially put some tax hikes back on the table. If markets do not believe the new Chancellor's vision is properly costed and funded, it could send shockwaves through UK households, as happened when Liz Truss unveiled her mini-Budget.
Fiscal responsibility pledge
The Prime Minister has sought to stress his administration's fiscal responsibility and said ministers were taking steps to reduce debt.
He said: "We are taking the action needed to get debt down. This will be a Government grounded in fiscal responsibility. It will stick to the fiscal rules, but at the same time, we will help reduce cost-of-living pressure on our constituents, and that's the approach that we will take."
Capital Gains Tax and property taxes
Capital Gains Tax (CGT) is a tax on profits on assets that have increased in value, applied to property (apart from a primary residence) as well as stocks and shares. The first £3,000 of gains is free, and after that 18% or 24% tax is paid on the profits, depending on whether the taxpayer is a basic rate or higher rate taxpayer.
John Healey has already spoken about bringing CGT rates in line with income tax, which could see an increase from 18% to 20% and from 24% to 40%.
Rumours of a major property shake-up have circulated for months, with Andy Burnham having previously spoken about the unfairness of the council tax system, which sees some small properties in Manchester pay more than mansions in London. A proportional property tax of 0.48% per annum is one option, which would end the 'postcode lottery' of some councils charging more than others for the same housing.
Pension and state pension changes
As previously announced by predecessor Rachel Reeves, pensions will no longer be exempt from Inheritance Tax from April 2027. The value of a workplace pension will start to be included in estate planning, and could tip estates over the Inheritance Tax threshold that would have previously been avoided. The £325,000 threshold (£500,000 including a main residence) would be much easier to exceed once private pensions are added.
The state pension has always been taxable, but an exemption has been announced for state pensioners with no other income, and this will be upheld by Andy Burnham. That is because the state pension is set to exceed the £12,570 tax-free Personal Allowance for the first time next April.
However, those who have any other income - such as private pension, property income or even other DWP bolt-ons like Second State Pension (SERPs) - will not be exempt and will pay tax, and the amount of tax paid will inevitably rise with the triple lock increase.
