The potential for increased taxes in the UK this autumn is raising concerns, especially after a prominent think tank questioned the feasibility of Chancellor Rachel Reeves’ financial plans.
The Institute for Fiscal Studies (IFS) has warned that her proposed strategies might not hold up, potentially leading to higher taxes to balance the books.
Tax Threshold Freeze and Pension Pot Targets
One of the most immediate concerns raised by the IFS is the possibility of extending the freeze on tax thresholds for an additional two years.
This move could be seen as an “easy political win” for the Chancellor, potentially generating around £10 billion in revenue.
The IFS director, Paul Johnson, also suggested that taxing lump sums withdrawn from pension pots could be another tempting option for the government to secure extra funds.
While such a move may appear lucrative, Johnson noted it would likely face strong opposition.
Limited Impact of Wealth Tax and Capital Gains
The think tank also examined other possible revenue sources, such as a ‘wealth tax’ and reforms to capital gains tax.
While both options could generate some funds, Johnson emphasized that these measures are unlikely to deliver the significant boost the Treasury may require.
Economic Uncertainty and Fiscal Challenges
The IFS’s analysis painted a bleak picture, describing the government’s financial roadmap as extremely tight.
Johnson highlighted that there’s only a 54% chance the UK will achieve its target of balancing the budget by 2029-30.
Moreover, the probability of meeting the secondary fiscal target — reducing public sector net financial liabilities — is just 51%.
These concerns are compounded by international economic developments, including Donald Trump’s recent announcement that all US car imports will face a 25% tariff starting April 2.
Such global shifts could further pressure the UK’s economic stability.
Potential Solutions and Political Challenges
While Reeves has pencilled in a potential increase in fuel duty for future years, the IFS suggested this may not materialize.
Johnson pointed out that reforming council tax could provide additional revenue, while extending the tax threshold freeze appears to be the most straightforward option for raising funds.
Capital gains reforms could contribute modestly, but Johnson was skeptical about the feasibility of implementing a comprehensive wealth tax, describing it as unlikely to yield substantial funds in the near term.
Reeves’ Response and Future Plans
In media interviews, Rachel Reeves downplayed the likelihood of tax increases this autumn but did not completely rule them out.
Speaking to Times Radio, she dismissed claims that deeper cuts or tax hikes were inevitable but emphasized her commitment to economic growth strategies.
Reeves stressed her focus on enhancing growth through planning, pension, and regulatory reforms to boost public service funding without relying heavily on tax hikes.
When questioned about resigning if her fiscal rules were broken, Reeves firmly stated that her rules are “non-negotiable,” expressing confidence in her ability to manage the economy without drastic measures.
What Lies Ahead
With economic pressures mounting and potential funding gaps still looming, the coming months will be crucial in determining how the government navigates these financial challenges.
While Reeves remains committed to avoiding significant tax hikes, public spending pressures may ultimately shape the Chancellor’s next steps.