Chancellor Rachel Reeves is preparing to unveil a Budget that analysts warn will disproportionately impact ordinary workers and homeowners in the South East of England, even as she commits to a substantial £15 billion annual increase in benefits spending.
A Grim Fiscal Package
Despite assurances made just one year ago that she would not return for further tax increases, the Chancellor is finalising what is being described as a grim fiscal package. This represents a significant shift from her previous stance, where she told the CBI conference that no more tax rises were on the agenda.
The Treasury is grappling with a financial black hole estimated to be in the tens of billions of pounds. Ms Reeves has attributed the fiscal woes to a range of factors, including productivity downgrades from the OBR watchdog, Brexit, and policies associated with Donald Trump.
Key Tax Measures in the Budget
The centrepiece of the revenue-raising strategy involves a council tax revaluation, specifically targeting properties in Bands F, G, and H. This move is expected to hit households in regions where property values have risen sharply, with the Institute for Fiscal Studies (IFS) suggesting London and the South East will be hardest hit.
In a separate measure, homes valued at over £2 million, a majority of which are located in London, will face an additional 'mansion tax' levy. This is seen as the government acceding to Labour demands to increase taxes on the wealthy.
Furthermore, the widely criticised freeze on income tax thresholds is set to be extended for another two years. This 'stealth raid' will drag millions more people into the tax system or into higher tax brackets, raising billions for the Treasury. Notably, for the first time, the state pension will exceed the tax threshold, meaning pensioners will see the government 'give with one hand and take with the other'.
Consequences for Pensions and Benefits
Private-sector pensions are also in the crosshairs. The Chancellor plans to target 'salary-sacrifice' schemes used by millions of workers to contribute to their pensions, a move expected to generate around £3 billion. Experts have warned this could deal a severe blow to private retirement savings, which already lag behind public sector pensions. Critics have drawn parallels to Gordon Brown's infamous pensions raid during the last Labour government.
On the spending side, Ms Reeves is set to significantly increase the benefits bill. Key policies include scrapping the two-child benefit cap at an estimated cost of £3 billion a year and uprating benefits by nearly 4% from April. This comes after the Chancellor abandoned efforts to curb the spiralling benefits bill following a Labour revolt earlier this year. The combined cost of these policies, along with a climbdown on winter fuel allowance cuts, is estimated to add £15 billion a year to welfare expenditure.
Business leaders have accused the government of crushing economic growth with what they describe as the most significant tax-raising budget on record, arguing that the previous fiscal statement has already dampened investment and enterprise.
