The new chancellor, Rachel Reeves, is set to deliver the first Labour Party Budget since 2010 on 30 October.
In a House of Commons speech in July, MoneyWeek reported that the new chancellor accused the previous government of leaving a £22 billion “black hole” in the public finances.
Furthermore, the incoming government will need to sort out the funding crisis in local government that has left many local authorities facing bankruptcy.
They also have ambitious plans to reform and rebuild public services, as well as, according to Reuters, boost defence spending to 2.5% of Gross Domestic Product (GDP).
However, throughout the election campaign, the new chancellor and prime minister, Keir Starmer, constantly reiterated the Labour pledge not to increase VAT, National Insurance contributions (NICs), or Income Tax.
So, how does Labour plan to raise revenue to fund their plans and fill the black hole?
Last month, you read about three ways to protect yourself from some of the possible tax changes the new government could make.
The changes we highlighted were:
- Aligning the rate of Capital Gains Tax (CGT) with Income Tax
- Potential changes to pension tax rules
- Measures to reduce opportunities to reduce your Inheritance Tax (IHT) liability.
Now, find out about some changes that have already been confirmed, and some other measures that may be announced on 30 October.
Some financial measures have already been confirmed
Although any key fiscal changes will be announced in the Budget next month, you may have already seen three announcements designed to raise government revenue in order to fill the black hole Rachel Reeves referred to:
- School fees will become liable for VAT from January 2025.
- The previously universal Winter Fuel Payment of £300 will now become means-tested and only paid to anyone receiving any benefits or tax credits.
- Plans announced by the previous Conservative government to cap how much people have to pay for adult social care from October 2025 will be scrapped.
The chancellor has also confirmed that taxes will need to rise in order to cover the deficit before economic growth can help fund the longer-term government financial plan.
Tax thresholds are likely to remain frozen
The previous Conservative government confirmed that the freeze in Income Tax thresholds that was put in place in 2021/22 would remain until at least 2028.
The Office for Budget Responsibility has estimated that, by 2028, 4 million additional workers will be paying Income Tax, and a further 3.4 million will become higher-rate taxpayers. Many pensioners may also start paying Income Tax for the first time.
Labour has confirmed that they will keep this freeze in place, but beyond that have made no firm commitments, beyond their pledge not to raise Income Tax.
Even if tax rates are not changed, it is highly possible that you may end up paying a higher rate of tax as your earnings increase.
You could see changes to the amount of Council Tax you have to pay
As you have already read, the funding crisis in local government is one of the big challenges facing the new chancellor.
According to a Guardian report, the money local authorities receive from central government reduced by 40% in real terms between 2010 and 2020. Furthermore, councils have been given the responsibility of managing key statutory services, such as social care and providing services to children with special educational needs.
At the same time, national government has restricted the annual rise in Council Tax that authorities could impose.
Two possible measures the government could announce are to remove the cap on future Council Tax rises, and to review Council Tax bands.
As you will probably be aware, the bands are based on the value of your property. However, they have not been officially updated since they were originally implemented in 1991.
Both of these steps could result in your Council Tax increasing in coming years as local authorities look to improve their financial situation and service provision.
Anti-tax avoidance measures could affect legitimate tax reliefs
Before the election, the new chancellor often cited tackling tax dodgers as being a source of revenue for the government. A BBC article confirms that she believes that £5 billion could be raised by doing this.
As a result, the new government has already committed to providing £855 million each year to HMRC in order to fully investigate claims and crack down on tax evasion.
It is clearly right for any government to clamp down on illegal tax avoidance in this way. However, a Telegraph report points out that there is a danger that such a move could affect legitimate tax mitigation opportunities that you may be taking advantage of, which may in the future be seen as evasion.
Given that, you should be aware of the tax reliefs and incentives you currently make the most of and regularly review your tax planning arrangements to ensure you do not fall foul of anti-evasion measures.
We can help you plan ahead
All Budget statements are clearly important but, given the potential for big changes that could affect your finances and financial planning, this could be one of the most impactful for some time.
As well as what is announced, one important point to watch out for is when any change or new proposal that could affect you will come into force.
For example, most Budget changes relating to taxation usually come into effect from the start of the next tax year.
Given this Budget is in October rather than the usual month of March, it could be a few months until certain changes come into effect. This may give you some breathing space to make decisions that shield your wealth, especially from tax rises.
We can help you understand the effect any changes announced could have on your financial planning, and outline an appropriate course of action for you.
Get in touch
If you would like to talk to a professional about how the Budget could affect you, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
