Chancellor Rachel Reeves is anticipated to introduce tax hikes in the upcoming October Budget 2024, essential for economic stability.
While Labour promises remain over key tax areas for individuals, they may impact businesses with rises in national insurance and capital gains tax.
Employers’ National Insurance Contributions
One of the most significant predictions for the October Budget 2024 is a potential increase in employers’ national insurance contributions (NICs). While the Labour government assured it would not increase NICs for employees, it left the possibility open for employers. Jonathan Reynolds, the business secretary, hinted that a rise in NICs for employers could generate substantial funds, estimated at £8.9 billion annually. This measure aims to bridge the fiscal gap, although it might meet resistance from businesses already grappling with inflation and rising interest rates.
Capital Gains Tax Adjustments
The capital gains tax (CGT) has come under scrutiny in recent discussions. Although Prime Minister Sir Keir Starmer downplayed the likelihood of CGT rising to 39%, potential adjustments could bring CGT rates closer to income tax rates. Current rates are 10% for basic-rate taxpayers and 20% for higher-rate taxpayers. Changes in CGT could deter investment, especially in the tech sector, but may be necessary to increase government revenue. Some investors are already accelerating business sales ahead of potential changes.
The possible alignment of CGT with income tax rates could significantly impact the entrepreneurial landscape in the UK. By potentially expanding the range of assets subject to CGT, the government could see increased revenue. However, this might also lead to reduced investments, particularly affecting startups reliant on significant capital inputs.
Non-Domiciled Tax Status Under Review
Labour is re-evaluating the controversial non-domiciled tax status, which allows individuals to avoid UK taxes on foreign-earned income. The criticism lies in its perceived unfair advantage, benefiting the wealthy while ordinary taxpayers comply with stringent regulations.
Reforms to the non-dom status could impact the UK’s ability to attract high-net-worth individuals and businesses. While change is desirable for tax equity, it poses the risk of deterring wealthy investors. Striking a balance is crucial to maintain the UK’s appeal as a favourable investment destination.
Billionaire John Caudwell has expressed concerns, warning against drastic changes to the non-dom regime. He emphasises that modifications could harm the UK’s investment climate, necessitating careful consideration to avoid negative economic impacts.
Income Tax Thresholds and Pensions
Chancellor Rachel Reeves is considering adjustments to income tax thresholds as a method to gain Treasury revenue without raising tax rates. Lowering thresholds could increase taxes on middle-income earners, effectively creating a heavier tax burden while aligning with Labour’s promise not to raise rates.
Alongside income tax considerations, discussions around pensions suggest Reeves might avoid reducing pension tax relief. Such a move could disproportionately affect public sector workers, leading to possible backlash and tensions with unions.
The Institute for Fiscal Studies indicates that reducing the personal allowance and basic-rate limit could collectively yield an additional £16 billion annually. However, the perceived breach of Labour’s tax promises could create public dissatisfaction.
Inheritance Tax and Fuel Duties
In the realm of inheritance tax (IHT), Chancellor Reeves might propose reforms to increase revenue. Current discussions suggest removing exemptions for business and agricultural assets could raise around £2 billion yearly, addressing views of IHT as double taxation.
Another significant revenue avenue is fuel duty. The long-standing freeze since 2011 might be lifted, potentially bringing £6 billion in additional funds annually. This change aligns with Labour’s green initiatives, encouraging the shift to environmentally friendly transportation.
The contemplation of increasing fuel duty reflects broader fiscal strategies aimed at environmental sustainability. Raising these duties could stimulate the adoption of greener technologies, benefiting both economic stability and ecological goals.
Private Equity and Gambling Taxes
Private equity profits, especially carried interest, might see changes in taxation to align more closely with income tax rates. This adjustment could yield significant revenue but may also alter financial behaviours.
Tax increases on the gambling sector are under consideration, potentially raising £3 billion. While seen as a substantial revenue stream, concerns about the industry’s viability and potential job impacts need examination.
Enhancing Fiscal Rules for Investment
Chancellor Reeves is exploring the adjustment of fiscal rules to allow more room for public investment. By adopting measures like public sector net worth, she could create fiscal headroom, estimated at £60 billion.
The potential changes in the October Budget 2024 reflect Labour’s strategy to balance fiscal requirements without undermining economic growth.
Chancellor Reeves faces the complex task of implementing tax adjustments while maintaining public and business confidence.
