Chancellor Rachel Reeves has refused to rule out tax rises in her Autumn budget as reports suggest there is a more than £20 billion shortfall in the public finances.
With limited options to cut public spending, speculation is that tax increases are the most likely way the government will try to balance the public purse.
Speaking at the Labour party conference in Liverpool, the chancellor implied she would not break manifesto commitments to working people on income tax, national insurance and VAT. However, she refused to discount extending the freeze on income tax thresholds.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Rachel Reeves has spent much of today fending off questions about tax rises. It’s not a matter of ‘if’ tax bills will rise after the budget. That’s a given. The question is which taxes will rise and by how much.”
Over the past few weeks, “everything has been in the frame, from capital gains tax to stamp duty”, she added. Pension tax breaks are also under the spotlight.
Coles stressed: “Reeves has said that the world had changed since she ruled out another tax-raising budget this year, which seems to show more taxes are on the cards.”
She added: “Even if the government was to do absolutely nothing, tax rises are also baked in. Some were set in train years ago, whereas others will always come as the natural consequence of rising prices, and the rising values of stocks, bonds and house prices.”
This is because income tax and national insurance thresholds are already frozen until 2028.
Coles said: “It means that every pay rise we get in the interim will mean paying more tax, and risks pushing people over a threshold into a whole new world of extra taxes.
“Becoming a higher rate taxpayer, for example, doesn’t just mean paying more tax on your wages, there’s also a smaller savings allowance and a higher rate of tax on interest, a higher capital gains tax rate and a higher dividend tax rate.
“Since 2021/22, when thresholds were frozen, the number of basic rate taxpayers has increased by 3 million, the number of higher rate taxpayers is up 2.65 million, and the number of additional rate taxpayers has more than doubled. By 2028, those figures are going to be even higher.”
Coles emphasised that extending the threshold freeze further is firmly on the table, alongside potential changes to capital gains tax, stamp duty and inheritance tax.
For employers, the ripple effect could see workers caught in “fiscal drag” potentially pushing harder for above-inflation pay awards, creating added pressure in reward negotiations.
There are also has implications for financial wellbeing support. Staff pulled into higher tax brackets will face knock-on effects on savings, investments and pensions.
Employers that anticipate these pressures, by reviewing pay strategy, communicating clearly, and investing in financial wellbeing programmes, will be better positioned to retain and support their workforce.
Rachael Griffin, tax and financial planning expert at Quilter, said: “Chancellor Rachel Reeves’ address to conference set the tone for her 26th November budget, with recognition of the dire economic backdrop and the need for tough decisions going forward. Tax rises had already been deemed all but certain, and the chancellor made no effort to quell such fears today.
“While she did not explicitly repeat Labour’s manifesto commitment not to raise taxes on working people, Reeves did stress that she would not break the trust of voters and would avoid measures that harm ordinary working people. This may suggest the door remains slightly ajar for indirect tax changes or threshold adjustments in the upcoming budget.
“While headline rates may remain untouched, it seems likely the public could still face a rising tax burden through fiscal drag, and potentially through higher taxes on the wealthy. This could come in the form of an extension to the existing freeze on income tax thresholds, for example, which has already resulted in a huge increase in tax take and has pulled many people into paying tax for the first time, or even into higher tax brackets.”
Further speculation that Reeves could tighten the tax breaks on retirement savings in the budget has prompted British expatriates across Europe to consider moving pensions out of the UK. This is according to deVere Group investment director James Green.
“Expats are already weighing their options. Even the possibility of new or extended taxes on pensions is enough to set serious savers in motion,” he said. “British nationals living in Europe, those planning to retire there, or other nationalities, such as Irish and Dutch with UK pensions, are now considering international solutions to protect their retirement income.”
The deVere Group, which has 80,000 expatriate clients, reported a marked increase in enquiries from UK citizens in Portugal, Spain, France and the Netherlands. Many are exploring cross-border EU IORP structures, particularly in Malta, ahead of the UK budget.
“The conversation has shifted from curiosity to preparation,” Green said. “People recognise that Malta’s EU-recognised framework provides flexibility, strong investor protection and potential tax efficiencies that could prove vital if the UK introduces tougher rules.”
He noted that Malta allows tax-efficient lump-sum withdrawals of up to 30 percent with no lifetime cap, phased income on a schedule set by the member, and inheritance treatment often outside UK death duties for non-residents. Portugal’s still-favourable tax regime, along with similar arrangements in Spain and France, strengthens the appeal for mobile retirees.
