Budget predictions: what could Rachel Reeves announce?

When Rachel Reeves stands up to deliver her budget on Wednesday, it would be fair to say that many of the chancellor’s announcements will have the ring of familiarity about them.
To the annoyance of the Commons speaker, Sir Lindsay Hoyle, much of the content of Reeves’s first budget is already in the public domain.
So, what do we know so far about what is expected to be in the budget, and what is missing?
This will be the biggest tax rise in the budget. Reeves will increase employers’ national insurance by between 1 and 2 percentage points from its present level of 13.8 per cent.
She is also expected to make a “significant” cut to the earnings thresholds at which employers start making national insurance contributions, which currently starts at £9,100.
In an attempt to soften the impact on small businesses, Reeves will raise their allowances. Hitting businesses with such a significant tax rise also appears to have a potential impact on another of Labour’s priorities — growth. If businesses are taxed more, they are less likely to take on staff and expand.
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Reeves will extend the freeze on income tax thresholds for up to two more years until 2030, dragging more than a million people into higher bands. The freeze is a “stealth tax” — as people’s earnings rise, they get pushed into higher tax brackets. The move is highly contentious, especially given that Reeves was critical of the Conservatives for freezing tax thresholds.
While in opposition, she said it was “picking the pockets” of working people. Labour is now claiming, as the Tories did, that it is not a breach of the party’s manifesto because it is not a direct tax rise.
Labour is expected to raise capital gains tax (CGT) on the sales of shares and other assets, which is levied at a rate of 20 per cent at present. A lower rate of 10 per cent applies when people are selling their own businesses.
Some have suggested that Reeves could align rates of CGT to income tax, which could raise up to £8 billion, but such a steep rise is unlikely as it could result in those who pay most moving their assets offshore to avoid the tax altogether. Figures show that last year just 369,000 taxpayers paid £14.4 billion in CGT, making it highly susceptible to “behavioural responses”. Nevertheless, some increase in CGT is expected, raising an amount expected to be in the low billions.
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Inheritance tax is charged at 40 per cent on all estates worth more than £325,000 — or £1 million for a couple passing their estate to children if it includes a property. The tax raises about £8 billion a year at present.
Reeves is expected to close several loopholes. She is likely to close the exemption from tax for pension pots if someone dies before the age of 75 and make it harder for people to avoid the tax altogether by putting their money into agricultural land.
A third loophole that may be closed is the exemption from inheritance tax from shares invested in small companies on the UK’s alternative investment market.
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At present, private schools are eligible for tax breaks, which can include not paying business rates or having to charge VAT on fees. Reeves has already made it clear that she will use her budget to impose VAT and business rates on schools for the first time from January. The Institute for Fiscal Studies has predicted that the tax will raise between £1.3 and £1.5 billion a year.
Labour has said it will move to close some loopholes that allow foreign nationals living in the UK to avoid paying tax on their overseas income. In particular, the party said it would remove a 50 per cent discount for non-doms bringing foreign income into the UK in the first year of the new rules.
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The government has said it would also include foreign assets held in a trust within the UK inheritance tax framework. But the Treasury is said to be reconsidering the move amid fears that it could lead to some wealthy individuals leaving the UK altogether, and could end up costing the Treasury money in lost revenue. Such changes would potentially make the Treasury £1 billion.
Ministers originally planned to increase the tax rate on private equity investors, on the share of profits earned. This is charged at 28 per cent, the capital gains rate, while the top income tax rate is 45 per cent. The government estimated that raising the tax on carried interest would increase annual revenue by £565 million.
However, Reeves is said to be looking again at the policy after analysis by the Treasury forecast that it could trigger an exodus of private equity executives, resulting in an annual cost to the exchequer of as much as £350 million after five years.
More than a million low-paid workers will get a pay rise of more than triple the present rate of inflation when Reeves announces a rise to the minimum wage of more than 6.7 per cent. This will take hourly pay from £11.44 to at least £12.21, with workers under the age of 21 getting an even bigger 16 per cent, to £10 an hour.
This is to ensure the minimum wage remains at two thirds of median earnings and has been trumpeted by Reeves as a “pay boost for millions”. But businesses are concerned about the impact, coming on top of expected rises in national insurance contributions and a comprehensive workers’ rights package.
One of the most significant and long-term announcements in the budget will be Reeves’s decision to alter the government’s fiscal rules to increase the amount of money it can borrow to fund long term infrastructure projects.
This could free up as much as £50 billion to spend on rail, road and green infrastructure developments. The increased borrowing could, however, push up the cost of government debt — that will mean interest rates remain higher for longer and fixed-rate mortgages are more expensive than they would otherwise have been.
Sir Keir Starmer is framing the budget as a moment to “fix the NHS” but both Reeves and Wes Streeting, the health secretary, have played down expectations for dramatic improvement. A £1.5 billion fund for scanners, surgical hubs and radiotherapy machines will be announced as the route to achieve Labour’s manifesto pledge of 40,000 extra operations and appointments a week. A multibillion-pound boost to day-to-day spending will also be announced, but Streeting and senior NHS leaders have already questioned whether it will be enough to turn around the health service and justify claims of a “budget for the NHS”.
Angela Rayner, the deputy prime minister, has been handed a £500 million fund for an initial 5,000 extra council houses, a down payment on broader ambitions to double existing annual totals of 11,000 a year. Reeves will also slash the discounts available to council tenants under right to buy to stem the loss of social housing. Councils will be allowed to keep all the proceeds of council house sales to encourage them to replace homes sold off.
Reeves has warned of “difficult decisions” on welfare, and will press ahead with Tory cuts to incapacity benefits for hundreds of thousands of claimants with mobility and mental health problems, saving £1.3 billion a year. A crackdown on fraud, also planned by the last government, will save £1.6 billion. To get the long-term sick back to work, Reeves is promising £240 million to pilot more connected local support services. But updated projections of the soaring cost of sickness benefits will add to pressure to find short-term savings.
The chancellor is expected to give the go-ahead to bring HS2 to Euston after the London element of the line from Old Oak Common was scrapped by Rishi Sunak last year.
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There will not, however, be any announcement on the fate of HS2 beyond Birmingham, which will have to wait for next year’s spending review.
Reeves will also announce about £1 billion of funding and subsidies for the UK’s bus network. This will include capping maximum fares at £3 from next year — up from £2 — but less than the true cost of some bus routes that would cost as much as £13 if the subsidy was not in place.
Beyond freezing the income tax threshold for a further year, the chancellor and other ministers have been categorical that there will be no rises on taxes for — as they put it — working people. In practice this means that national insurance, VAT and income tax will not rise.
Earlier in the budget process, Reeves seriously examined imposing national insurance on the money that companies put into their employee pensions. This would have raised about £15 billion.
However, the plan was scrapped amid warnings, including from Lord Blunkett, the Labour peer, that firms would respond by reducing future pension contributions, further reducing people’s retirement income. Instead, Reeves has opted for a wider increase in firms national insurance contributions.
There has been speculation that Reeves will use her budget to break away from the precedent set by chancellors since 2011 of freezing fuel duty in the budget. She also has to make a decision on what to do about the temporary 5p cut in fuel duty announced by Sunak that is due to end in March.
However, Treasury sources say Reeves has no plans to impose a politically toxic rise on fuel prices — even if that means having to find tax revenue from elsewhere — as the rises have already been pencilled into future government budgets.