On March 26, the Office for Budget Responsibility (OBR) will release forecasts for the economy, which the Chancellor will share and respond to in her Spring Statement.
Since the October Budget, growth has undershot expectations, inflation has climbed to its highest level in 10 months at 3 per cent and a sharp rise in government bond yields has all but wiped-out Reeves’s £9.9bn headroom against her fiscal rules.
He said: “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.”
Despite Reeves confirming on 30 October that from the 2028/29 financial year, income tax thresholds will be uprated in line with inflation, experts told The i Paper the freeze could actually be extended.
“Clearly 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.”
If they are kept frozen, it is predicted thousands of pensioners will be dragged into paying income tax for the first time.
Reducing the tax-free allowance on pensions
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.
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Read MoreMr Salter said: “This would be quite controversial, as it is probably the ‘most well known’ bit about pensions for the average taxpayer.
Tom Selby, director of public policy at AJ Bell, said Reeves has three broad choices in the absence of a sharp rise in growth: loosen her fiscal rules, cut government spending, or raise taxes.
Instead, she could look to reform ISAs as an attempt to boost investment or economic growth.
City firms are said to have lobbied Reeves over this, with hopes more people would invest in stocks & shares ISAs and boost the economy.
“Any reforms to ISAs need to be squarely focused on the long-term, with the aim of simplifying the product and encourage greater levels of long-term investing.
“Simplification alongside improvements to the help available to investors through ‘targeted support’ could create the foundation for an investing revolution in the UK, although clearly this isn’t going to happen overnight.”
Widening the scope of national insurance contributions
At the last Budget, Reeves announced that employer national insurance contributions (NICs) will increase from 13.8 per cent to 15 per cent on 6 April.
These are a type of benefit you can offer an employee or director of a company in the UK on top of salary, for example, a company car or private health insurance.
“However, there is already a move to have benefits-in-kind reported via the payroll in all cases going forward. This would therefore fit ‘quite naturally’ with imposing employee NICs on such benefits.”
At the last Budget, Reeves announced that employer national insurance contributions will increase from 13.8 per cent to 15 per cent (Photo: Justin Tallis/AFP)He suggested VAT could be imposed on areas such as private healthcare or the VAT on school fees could be widened to preschools or university education too.
Relaxation of the penal changes to agricultural property relief
Rowan Morrow-McDade, tax director at Alexander & Co Chartered Accountants, thinks Reeves could relax the penal changes to agricultural property relief (APR), following widespread protests by farmers.
She announced that claims for business property relief (BPR) and agricultural property relief (APR) will be capped at £1m per taxpayer with tax charged at 20 per cent on the value in excess of the cap.
According to Capital Economics’ Fiscal Headroom Monitor, the rises in the Government’s borrowing costs since the Budget have whittled away Reeves’s headroom from £9.9bn to just under £3bn.
She explained: “As a result, the Chancellor will probably face a nasty choice of breaking her fiscal rules or announcing more tax rises and/or spending restraint on 26 March.
“That way she could avoid worsening the economy’s near-term prospects and politically unpalatable tax rises.
Tightening rules on personal companies
Tightening the rules on personal service companies – companies owned by an owner/director – could be an option, Mr Salter said.
These options do generally provide the owner-director with a relative tax win compared to someone doing business, for example, directly as a self-employed individual.
Mr Salter said: “While this change would be controversial, there are other countries which do – at least to some degree – look through the personal service company when it comes to assessing the owner’s tax position.”
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