Speculations Surround Labour’s Tax Plans Ahead of First Budget

As the UK’s Labour government prepares for its inaugural Budget, speculation mounts over potential tax changes. With the party withholding specific details, concerns and rumours abound. This comes amid a reassurance to “working people” that there will be no hikes in income tax, National Insurance, and VAT, yet other areas are perceived as being under scrutiny.

Sources have suggested that capital gains tax could see modifications. Labour has eschewed freezing current rates, leading analysts to predict adjustments. Sarah Coles from Hargreaves Lansdown commented on the potential for a rise, saying, “Labour hasn’t ruled out raising capital gains tax. It would enable the Government to deliver on the promise not to raise taxes for ‘working people’, because it’s a tax on wealth.”

Inheritance tax is another point of contention. Currently, the nil-rate band for IHT stands at £325,000, a figure unchanged since 2009 despite significant property value increases. Labour’s Shadow Chief Secretary to the Treasury, Darren Jones, previously suggested IHT could address “intergenerational inequality,” prompting concerns about changes to current exemptions.

The taxation of pensions is another area with potential for reform. Questions arise over the status quo, which generally exempts pensions from IHT. The possibility of lowering the current £60,000 annual pension contribution limit also looms, even as the pledges to eliminate the lifetime allowance revert.

In addition to these, council tax reforms are anticipated. Labour could move towards a “proportional” system, recalibrating assessments based on current property values rather than those of 1991. Reassessments could result in significant tax increases across numerous regions, according to the Institute for Fiscal Studies.

The pressure to address the “fiscal hole” through tax measures also looms large. Recently, the Winter Fuel Payment has been restricted significantly, affecting about 90% of pensioners who previously qualified. Labour’s plans to apply VAT to private school fees from 2025 has also been confirmed in their latest announcements.

A broader review of the state pension and savings taxation system is anticipated. There remains uncertainty about how these measures align with Labour’s commitments like maintaining the triple lock on the state pension, as described by Alice Haine of BestInvest: “It is possible [Labour] may explore other avenues for changing the taxation of pensions.”

An early Budget announcement might provide an opportunity for the government to shape public perceptions around these uncertainties. With potential tax adjustments aligning with the goal of bolstering economic growth, the need for clarity remains urgent even as the Labour Party holds a comfortable majority. Observers await the formal presentation of the party’s fiscal strategy in what aims to be a decisive moment for the new government.