Fall statement: Which tax hikes and spending cuts are most likely? | Economic policy

When he was Chancellor, Rishi Sunak’s Treasury routinely disclosed many elements of his budgets in advance, and there has been a similar slew of informed speculation about how, as Prime Minister, he can fill the gap. estimated £60bn gap in UK public finances. next week’s fall statement.

With plenty of fiscal misery expected, there’s an upside for Sunak and his chancellor, Jeremy Hunt, to come up with possible options to gauge the reaction – and it’s likely that some ideas mentioned in the papers will never be picked up. But here are some of the ideas on the table, in terms of tax increases and spending cuts, and the likelihood of them being implemented.

Stealth tax increases

Perhaps the simplest tax hike a government can do: raise tax bracket thresholds not in line with inflation, or not at all, and the extra revenue could run into the billions. The most likely are the income tax thresholds, which will bring in the greatest additional income. Among the levies that may be subject to the “tax brake”, as it is also called, are inheritance tax, capital gains tax and dividend tax relief.

Political impact: Wouldn’t be popular with low-tax conservatives, but after the implosion of Liz Truss’ tax plan, there’s more tolerance than normal for such ideas.

Tax impact: There is a lot of money at stake. While a freeze of the ‘zero rate band’ of inheritance tax from 2025-26 to 2027-28 would bring in another £500m, the Treasury would gain £30bn sterling thanks to high inflation if Hunt extends the income tax bracket freeze.

Probability: 4/5


Capital spending cuts

One of the temptations to cancel or scale back major projects is that you can wipe billions off the government’s balance sheet with a few keystrokes. Plus, you’re getting rid of something that doesn’t yet exist and therefore could easily be overlooked by voters. Projects believed to be in the Treasury’s sights include Sizewell C nuclear power station and parts of HS2 and Northern Powerhouse Rail.

Political impact: Potentially toxic, especially among MPs whose areas are affected, who will say that long-term growth and productivity will be hurt by such cuts.

Tax impact: As tempting as it may be when tens of billions of pounds can be saved, delaying or canceling major infrastructure projects, particularly if they reduce the UK’s dependence on fossil fuels, will be a serious blow to the future productivity and competitiveness of the UK economy.

Probability of certain cuts: 4/5.


From the abandonment of a major project: 2/5


Reductions in real terms of benefits or pensions

With working-age benefits in Britain costing nearly £88billion a year and pension and retirement-age benefit spending running north of £110billion, the Savings are evident if either or both are increased by, say, 5% rather than the current level of inflation closer to 10%. While broadly similar in approach to a stealth tax hike, it would be far more noticeable and controversial.

Political impact: Tricky, which is why there has been a lot of speculation that Hunt will rise at a time through inflation. But the savings cannot be ignored.

Tax impact: For pensions, limiting the annual increase to rising earnings would save £6billion in each of the next two years, while working-age benefits would be £7billion lower than if they were linked to rising inflation.

Probability: 2/5


A kind of increase in the highest tax rate

Weeks after Kwasi Kwarteng announced the abolition of the top income tax rate of 45p in Truss’ poorly starred mini budget, there is talk the rate could now rise – although a much more likely outcome is a drop from the current point of £150,000 to where people start paying the highest fare, potentially by a significant sum.

Political impact: Kwarteng and Truss hailed the abolition of the 45p rate as removing an aspiration tax, and some Tory MPs will deeply loathe such a move by Hunt. But as Truss discovered, cutting taxes for the wealthy isn’t very popular elsewhere.

Tax impact: There are only modest gains for the Treasury by dragging more people into the 45p tax rate. When the annual receipts of all taxpayers above £150,000 are around £2 billion a year, moving the threshold will only yield hundreds of millions of pounds.

Probability of a lower threshold: 3/5


Expanded windfall tax

Between her campaign to become prime minister and the start of her brief stint at No 10, Truss changed her mind about Sunak’s windfall tax on energy companies, which she had initially condemned as a deterrent to investing. The version implemented under Sunak had significant waivers for new fossil fuel investment, meaning Shell paid nothing despite £26bn in profits. Alok Sharma, the president of Cop26, is among those who have called for a revised version.

Political impact: Sunak, like Truss, warned of a Labour-style windfall tax as a drag on business. Much like Truss, if he backtracks he is likely to be wildly popular, beyond some Tory MPs. But it doesn’t look much like Sunak.

Tax impact: There is no evidence that energy companies will reduce their investments if they are forced to give up part of their windfall gains. A broader levy on industry with fewer opt-outs could boost revenue by £5bn to £10bn.

Probability: 2/5


Delay the ceiling on social assistance

It was, however, a flawed outcome, one of Boris Johnson’s flagship policies, and was due to come into effect in October 2023. Some reports say Sunak wants to delay this for two years, and possibly permanently, saving up to £2 billion a year. year. It would, however, mark yet another failure to address one of the UK’s most pressing chronic political problems.

Political impact: Likely to cause a storm among Tory voters and therefore MPs, given that the cap’s ambition to prevent older people from having to sell their homes to pay for care disproportionately helps people in affluent areas.

Tax impact: Proposals for a now scrapped 1.25 percentage point increase in National Insurance contributions were to pay for increased health spending and more money for social care, with a cap on care costs. NHS funding is secure, but social care looks to be losing out again, although older and disabled people will end up in hospital longer than necessary, driving up NHS bills.

Probability: 3/5


Change of tax status not domiciled

Although it seems unlikely that the complete removal of the ability of people with overseas tax competence to avoid paying UK tax on their earnings – which Sunak’s wife enjoyed for some time – would there is speculation about quite significant changes, such as reducing the allowable term from 15 to 5 years. years, potentially raising £1.6bn a year.

Political impact: Voters are unlikely to be concerned, but it could alarm many non-dom Conservative donors, which is a demographic the party really doesn’t want to fall out with.

Tax impact: Many nurses brought in from abroad claim non-dom status. They fill vacant, low-paying positions in the NHS, but refuse tax receipts from the Treasury. Difficulties in separating good non-dom from bad generally sabotaged the changes.

Probability: 2/5


Council tax increase

Not directly a Treasury tax hike, as that would be done by local authorities. But with council grants set to be frozen, one idea being considered is to allow council tax to rise by 3% or more without a referendum, as is currently required.

Political impact: It would be unpopular, but as with much of George Osborne’s 2010 austerity, outsourcing the pain to councils is tempting for the Treasury.

Tax impact: As councils claim to face a £15billion shortfall in the budget because of Osborne’s austerity measures, being told again they can only recoup their losses on bills from higher taxes would cripple many services.

Probability: 3/5