What are Rachel Reeves’s options after U-turn on income tax rates?

Rachel Reeves has ditched a manifesto-busting plan to increase income tax rates for the first time since 1975 in this month’s budget. The chancellor is widely expected to increase taxes as she attempts to find billions of pounds to repair the public finances. She is expected to raise between £20bn and £30bn. With an income tax rise off the table, here are some of her other revenue-raising options on 26 November as she seeks to build up more headroom against her tight fiscal rules which she adopted last year. Freeze income tax thresholds for another two years, to 2030 In normal times, the thresholds at which taxpayers move into paying the higher and additional rates of income tax move up each year in line with inflation. Rishi Sunak froze these thresholds for four years in his 2021 budget, during the pandemic. Jeremy Hunt then extended the freeze for another two years. Reeves suggested in her budget last year that extending the freeze further would “hurt working people”. But the measure has long been seen by economists as among the most probable options this time around. Raises: £7.5bn a year Implement a pay-per-mile charge for electric vehicles This measure has been well-trailed as a way of helping the Treasury to offset the rapid decline in revenue from fuel duty in the years ahead as more motorists switch over to electric vehicles. It is expected to cost EV drivers 3p a mile. Initial revenue for the Treasury is likely to be low but will build up over the coming years. Raises: has not been forecast Raise taxes on gambling Reeves’s predecessor Gordon Brown has been pushing for a £3bn rise in gambling taxes to help fund measures to tackle child poverty – a plea backed by thinktanks including the Institute For Public Policy Research and Social Market Foundation, and by MPs on the Treasury select committee. The chancellor has been consulting on the issue and is widely expected to take some action, though it may fall short of the Brown plan. Gambling firms have been lobbying government intensely over the issue. Raises: up to £3bn a year Cut pensions tax relief through 'salary sacrifice' schemes These are schemes – often aimed at higher earners – whereby an employee agrees to a lower headline salary, in exchange for a higher employer contribution into their pension pot. The employer then does not pay national insurance contributions (NICs) on that pension contribution. Levying NICs in full on these salary sacrifice schemes could bring in up to £4bn a year – though it may raise questions about whether workers’ incentives to save for their retirement would be affected. Raises: up to £4bn a year Double council tax for properties in the top two bands Economists and many Labour MPs have long argued that the current council tax regime in England is regressive and unfair, based as it is on valuations from 1991. The Treasury is known to have been toying with levying heavier council tax charges on the most valuable properties. A doubling of the rate for the top two bands, G and H, is seen as one possibility. It would be highly controversial, however, with coverage likely to focus on the owners of valuable properties who nevertheless have low incomes – so Reeves would have to be ready to make a robust argument for the change. Raises: £4bn a year Reform capital gains tax Cross-party experts have recommended a wide range of reforms to the CGT regime, to make the system more progressive and bring the taxation of wealth closer to that of income. Some of those deemed most likely include levying a “settling up tax”, when high net worth individuals leave the country. Raises: up to £2bn a year