The tax changes Rachel Reeves could be pushed into making this spring have been revealed – with the Labour Party Chancellor at risk of putting up taxes to avoid breaking her fiscal rules. Among the changes could be extending freezes on income tax thresholds – or reducing tax-free allowances on pensions.
Neil Insull, a partner at business advisory firm Blick Rothenberg, said the Chancellor may be “forced” to announce further tax rises in addition to expected spending cuts. He added: “Lower growth projections in the OBR report will cause further jitters in the already nervous bond market and it will be no surprise if the Chancellor looks to raise tax revenues to meet her fiscal rules.”
Robert Salter, a director at Blick Rothenberg, said: “I would anticipate that the freeze on the income tax bands could easily be extended until April 2029. Freezing the bands isn’t, at least directly, a tax rise, but it is already creating significant additional revenues for the Government through fiscal drag, and freezing the rates for another year would only increase this revenue raising.”
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At the moment, most savers can take 25 per cent of their pension pot tax-free once they reach the age of 55, up to a maximum of £268,275. It has been reported that government officials have asked one of the UK’s top pension providers to assess the effects of cutting the tax-free lump sum to £100,000.
Mr Salter said: “This would be quite controversial, as it is probably the‘most well known bit about pensions for the average taxpayer. Plus, as a country, we clearly need to be saving more from a private pension perspective than we are presently doing and changing the rules about pensions could easily be said to undermine the faith that people have in the pensions system.”
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The Chancellor’s fiscal rules include the current budget should be on course to be in balance or surplus by 2029/30 (the “stability rule”) and net financial debt should fall as a share of the economy in 2029/30 (the “investment rule”).
The third and final rule is some types of welfare spending must remain below a specified level (the “welfare cap”).
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