Reeves is facing a budget deficit of £57bn by 2029, according to one forecast released last week, and will likely have to make further spending cuts or put up taxes in order to meet her tight fiscal rules.
Putting more duty on alcohol and tobacco and raising corporation tax, paid by companies in the UK on profits, were also among the least hated tax measures.
Scroll down for a full list of the five tax hikes that would be least hated by voters, how likely Reeves is to increase them and how politically difficult that would be for the Labour Government.
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Although these amounts would increase over the coming years as more people become additional rate taxpayers.
Alcohol and tobacco duties rise each year, and the Budget watchdog has already assumed this will happen again next year, but Blick Rothenberg’s calculations suggest even if the duties were increased by more than usual, the total amount raised could be just £315m per year.
The taxes that the public least want to see increased, such as VAT and income tax for low earners, are among those that could raise the most money.
Increasing the basic rate of tax – paid on earnings between £12,570 and £50,270 – from 20 per cent to 21 per cent would also raise £7bn a year in extra receipts.
The party said in its manifesto: “Labour will not increase taxes on working people, which is why we will not increase national i nsurance, the basic, higher, or additional rates of income tax, or VAT.”
But she has left herself relatively little “headroom” against her fiscal rules, meaning that it would not take much deterioration in the economy – perhaps driven by the ongoing global turmoil – to force her into another squeeze on the public finances. Further spending cuts, the other way to reduce borrowing, would risk a ferocious backlash from Labour MPs.
He said: “She has only a whisker of room against her rules, but bad news since her spring statement could mean she has to find more money.
“You could look at new taxes. There are bold claims for example about how much a wealth tax could raise, but it’s difficult to do,” he said.
A HM Treasury spokesperson said the best way to strengthen public finances was “by growing the economy” which was the Government’s “focus”.
The Government has also committed to to capping corporation tax at 25 per cent for the whole Parliament.
Five tax rises the public are least opposed to, and how much each would raise
1. Additional rate of income tax
This is charged on income above £125,140, at a rate of 45 per cent. The threshold is frozen at £125,140 until 2028.
An increase from 45 per cent to 46 per cent would raise £135m in extra revenue for the Government, and an increase to 47 per cent would raise £270m.
“These numbers would increase over time – as more people will gradually be pushed into the 45 per cent tax band – but the estimates even for 2027/28 would suggest that this would only bring in an extra £230m or thereabouts for a 1 per cent rise,” explains Robert Salter, of Blick Rothenberg.
A total of 48 per cent of voters would back an increase to the additional rate of income tax, according to BMG’s polling for The i Paper last week.
Likeliness rating: 3/5 – This would break Labour’s manifesto promise but would be welcomed by many of the party’s MPs.
Danger rating: 2/5 – Voters rarely have much sympathy for the highest earners, but there is a risk of driving ultra-wealthy taxpayers away from the UK altogether.
2. Tobacco and alcohol duty
Taxes on alcoholic drinks are paid according to the strength, while on tobacco, rates vary depending on whether you are buying cigarettes, handrolling tobacco or cigars.
The rates increase every year, and some increases are already assumed in the years ahead by the Office for Budget Responsibility, meaning bigger increases would be needed to improve the public finances.
Salter said even if you had a three per cent effective increase, “you are only looking at perhaps getting another £315m or thereabouts in overall tax receipts.”
A total of 37 per cent of voters would back an increase to these taxes.
Likeliness rating: 5/5 – It is almost certain that at some point Reeves will hike these “sin taxes” to raise a bit of cash.
Danger rating: 1/5 – Even though they increase the cost of living, the public tends to be pretty tolerant of these types of duties.
3. Corporation tax
This is a tax companies pay on profits. There are various rates but the headline level is 25 per cent for companies with profits over £250,000.
There are various reliefs that can reduce this in certain circumstances, but if the headline rate were raised to 28 per cent, Salter suggested this could raise £10bn to £12bn.
But he added: “Though it could increase tax receipts in the short-term, I would suggest that this could be very bad ‘marketing’ from a wider, UK perspective. That is, in terms of how the UK is seen by international businesses and it would appear to go against the Government’s stated ‘open for business’ agenda.”
A total of 26 per cent of voters would back an increase to corporation tax.
Likeliness rating: 2/5 – The Chancellor will be very wary of alienating businesses again after the backlash to her national insurance hike last year.
Danger rating: 3/5 – Businesses would be spitting feathers, but most voters may be less concerned.
4. Higher rate of income tax
This is charged on income between £50,270 and £125,140, at a rate of 40 per cent. The threshold is frozen at £50,270 until 2028.
An increase from 40 per cent to 41 per cent would raise approximately £1.45bn initially, with the figures rising a little over the following years, according to Salter.
A total of 22 per cent of voters would back an increase to the higher rate of income tax.
Likeliness rating: 1/5 – As well as being a direct breach of a manifesto pledge, this would be a tax hike on millions of Brits.
Danger rating: 5/5 – Many of those who fall in this bracket do not feel particularly wealthy and would be furious at being targeted by the Chancellor.
5. Capital gains tax
This is a tax on the profit when you sell something that’s increased in value, like property or shares.
The rates vary for multiple reasons, and so different tweaks would raise different amounts, but Mr Salter suggests that any increase is unlikely to raise much, if anything at all, because people’s behaviour would change – and they may delay selling assets.
“This is linked to the fact that there is classically a lot of ‘flexibility’ as to when someone sells an asset and there is a strong suggestion that increases in the CGT rate often result in people deferring the sale of their assets,” he says.
A total of 20 per cent of voters would back an increase to capital gains tax.
Likeliness rating: 4/5 – Reeves has already fiddled with capital gains tax once and is likely to be tempted again in the coming years.
Danger rating: 2/5 – The rules on capital gains are complex and so it is not too hard for the Government to raise a bit more money without most ordinary people noticing.
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