London (Parliament Politics Magazine) – The IFS warned Labour faces tough fiscal challenges, noting potential tax increases on capital gains, inheritance, and stamp duty.
The Institute for Fiscal Studies (IFS) stated Labour had promised not to increase income tax, national insurance, VAT or corporation tax before the budget, boosting speculation that Rachel Reeves will seek to raise revenues from rises in capital gains tax, inheritance tax and stamp duty on property sales.
How might tax increases impact capital gains and inheritance?
The IFS stated there was a danger the chancellor would desire extra revenues from “economically damaging” tax rises that only bring short-term relief to the government’s spending deficit. The IFS stated Labour entered office met with “unenviable arithmetic” given that the previous administration had pushed tax revenues to the most elevated level since the 1940s, while also imposing “big cuts to public investment and some public services”. “Merely avoiding spending cuts would – if debt is to fall – likely require raising tens of billions of additional revenue by 2028-29,” the report stated.
What revenue strategies is Rachel Reeves considering?
Rachel Reeves said the Conservatives had left a £22bn gap in the public finances, mainly from underfunded pay gains for public sector workers and a deficit of more than £6bn in the Home Office budget. This shortfall was only partially filled by the £1.4bn saving from regulations to the pensioners’ winter fuel allowance.
Can labour avoid cuts while raising necessary funds?
Stating that “Reeves has not made life easy for herself”, the IFS stated government spending could still be funded by large injections of funds from taxes outside the big four, but it would take bravery to carry through the necessary changes. It expressed England could copy the example set by Scotland and raise the council tax that applies to homes ranked from band E to H, boosting £1.5bn in extra revenue. “Going further and raising rates by 50% on the highest-value properties – bands F to H – would bring in closer to £3.5bn,” the IFS stated in a report, Options for Raising Taxes.
Changes to inheritance tax, which is on course to increase £7.5bn in this financial year, could raise the Treasury’s firepower, it stated. “A good start would be terminating, or at least capping, the unjustified immunities for pension wealth, business assets and agricultural land – a change that would extend around £2bn a year assuming no behavioural reaction,” it added.