Chancellor Rachel Reeves has signalled she is prepared to become the first chancellor in half a century to raise income tax as she warned that “everyone will have to contribute” to restoring Britain’s public finances.
In a Downing Street speech yesterday, Reeves said she would prioritise the “national interest” over “political expediency” and confirmed she will submit her fiscal plans to the Office for Budget Responsibility in the coming days.
The move comes as the Treasury faces a budget shortfall of up to £30 billion, forcing difficult decisions on taxation and spending ahead of the Autumn Budget.
The warning marks a sharp shift from Labour’s election manifesto, which pledged no increases to income tax, VAT or National Insurance. Economists now expect a broad-based rise in income tax or changes to thresholds to fill the gap, alongside possible reforms to wealth and property taxation.
HAMPERING GROWTH
Business and property leaders urged caution, warning that sweeping tax rises could stifle investment and slow recovery in key sectors such as housing.
Nathan Emerson, chief executive of Propertymark, says: “With increasing speculation about potential tax rises, it is crucial that careful consideration is given to avoid hampering growth within the housing market, as it is a central engine of the economy.
“It is encouraging to hear the Chancellor state that her Autumn Budget is aimed at boosting productivity.
“Any measures designed to ease the cost of living and positively impact the housing market would be very welcome news for consumers.”
HOUSING TARGETS
But he adds: “However, with continued uncertainty ahead of the Autumn Budget regarding possible changes to stamp duty and National Insurance, both of which could directly affect landlords, these measures will be closely scrutinised.
“The Chancellor must ensure a careful balance is struck to promote future investment and enhance confidence in the sector, especially at a time when governments across the UK are pursuing ambitious housing targets.”
RADICAL REFORM
Rob Morgan, Chief Investment Analyst at Charles Stanley, says taxpayers were likely to feel “distinctly uneasy”, adding that income tax and National Insurance were “firmly in the cross hairs for a broad increase.”
Legal experts also warned that Reeves’ language on fairness could foreshadow more radical reform.
Hilesh Chavda, partner at Spencer West, says the speech “may signal significant policy shifts ahead,” including changes to capital gains or property taxation, while Charlotte Sallabank, tax partner at Katten Muchin Rosenman, says new higher rates for top earners “could drive an acceleration in high earners moving to more welcoming tax regimes such as Dubai and Milan.”
