The plans, which include 12 new submarines, an army boosted to 100,000 personnel, six new munitions factories, and a greater shift to drone warfare, have been overshadowed by claims that the Government will not be able to afford them without major trade-offs.
“It looks like the Government wants to reinstate the winter fuel payment,” he told Times Radio on Monday. It’s thinking about the two-child limit for benefits.
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“But of course, that’s not something the Prime Minister or the Chancellor is willing actually to say,” he added.
It said: “The government’s important decision to raise defence spending to 2.5 per cent of GDP by 2027/28 and, vitally, to 3 per cent in the next Parliament made an enormous difference. The decision established the affordability of our recommendations across a 10-year programme.”
The Labour Party issued a clear pledge at the general election that it would not raise income tax, national insurance, or VAT on working people; however, Reeves could circumvent this by exploring more indirect taxation.
Political risk rating: 4/5 – Freezing tax thresholds is often referred to as a “stealth tax”. While it may raise much-needed revenue, this approach could put Reeves in the firing line for squeezing earners.
Increase national insurance
Shaun Moore, personal tax expert at Quilter, told The i Paper last month that a “modest 1 per cent rise in national insurance for employees and employers could generate billions in revenue”.
Political risk rating: 5/5 – Backtracking on Labour’s headline election pledge not to raise certain taxes would be a perilous move for a government only 18 months into its term. Reeves would have to strongly justify the move to minimise the political and public backlash.
If Reeves chose this route, one option could be to increase the additional rate of income tax for the highest earners. Income tax is charged at 45 per cent on earnings more than £125,140 – a rate frozen until 2028.
Robert Salter, of Blick Rothenberg, told The i Paper last month that the latter move could raise as much as £1.45bn for the Treasury annually, while the former would bring in a more modest £315m.
Tax rental income
Although Reeves has pledged not to raise taxes on working people, she could circumvent this by expanding the scope of national insurance to include revenue from rental properties.
The Treasury could reform this by requiring landlords to pay national insurance on their earnings, creating a separate tax band for rental income, or introducing VAT on residential letting properties.
Reeves may look to reform pension tax reliefs as part of efforts to raise revenue, with one option being to remove both income tax and national insurance relief, which would cost a typical employee earning £35,000 – about £560 per year.
Further routes available include restricting the tax-free lump sum available on retirement or standardising tax relief on pension contributions, which is currently applied at an individual’s marginal rate.
Reform inheritance tax
Another option for targeting higher earners could be further reforms to inheritance tax. This would build on changes already made in 2024 that brought unused pension savings into the tax.
She may also consider revising the rules for gifts made before death, known as potentially exempt transfers. Currently, gifts are tax-free if the giver lives seven years after passing on the money, with tax gradually reducing from year three.
Taxes on alcoholic beverages depend on their strength, whereas tobacco taxes vary based on whether you purchase cigarettes, hand-rolling tobacco, or cigars.
Political risk rating: 1/5 – Though it may increase costs for many voters, taxation on these products tends to be well tolerated by the public.
Unfreeze fuel duty
A temporary 5p-per-litre cut, introduced in 2022 to ease the pressure of rising living costs, is also still in effect, costing the Treasury billions each year.
Political risk rating: 5/5 – Increase taxation on fuel can easily be spun by opposition parties as a tax on working people, and could anger many voters who rely on their cars for work.
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