With Britain’s public finances stretched and her own spending plans under strain, the Chancellor will need to find cash elsewhere. Fast.
She’s boxed in. A massive public backlash has killed off plans to cut benefits or scrap the winter fuel payment.
Her self-imposed fiscal rules ban borrowing to fund day-to-day spending. That leaves one path open: tax by stealth.
And experts say she has plenty of options.
Jason Hollands, managing director at wealth firm Evelyn Partners, thinks Reeves is likely to extend the freeze on income tax thresholds to 2030. “It’s already pulling millions into the tax net as wages rise.”
The current freeze runs to 2028 and will raise £38billion.
Tagging on another two years could add £10billion more. “People wouldn’t feel the hit straight away, and it wouldn’t technically breach Labour’s pledge.”
Hollands said Reeves may also cut the threshold for the 45% income tax band from £125,140 to £100,000. That would raise billions from higher earners, again without breaking any manifesto promise.
He fears she won’t stop there.
Reeves has already tightened inheritance tax (IHT) rules in her Budget, targeting farms and family firms. She’s also slapping IHT on unused pension pots from 2027.
But there’s more she could do.
Today, people can give away £3,000 a year IHT-free, plus £250 to anyone they like and £5,000 for a child’s wedding. They can also make unlimited regular gifts from surplus income. Larger gifts fall outside IHT after seven years.
Reeves could scrap the lot and bring in a single lifetime gifting cap, set at a much lower level, Hollands warned. She might even stretch the seven-year rule on IHT-free gifts to 10 years.
He said she may hit our pensions too. “Politicians can’t resist dipping into pensions. They see them as their piggybanks.”
The 25% tax-free lump sum is an obvious target. Hollands suggested she could slash the maximum amount from £268,275 to just £100,000.
Yesterday, I reported that Robert Salter at accountants Blick Rothenberg reckons she could limit tax-free cash to just £75,000.
Both experts fear she will also target tax relief on pension contributions. It costs the Treasury £48billion a year and is worth 40% or to 45% for top earners.
A flat rate of 25% for all could save billions.
Salary sacrifice workplace pension schemes could also be clipped, Hollands said.
ISAs are also under review. The £20,000 Cash ISA allowance could be slashed to £4,000.
Pensions Minister Torsten Bell has previously floated a £100,000 lifetime ISA cap. “This still hasn’t been ruled out,” Hollands warned.
Capital gains tax (CGT) is another potential target. Reeves may scrap the current rule where CGT liabilities vanish on death.
That could mean beneficiaries pay CGT first, then IHT on what’s left. “It would hit family businesses and farmers even harder,” Hollands said.
If Reeves goes too far, tax hikes could knock confidence, stall growth and damage her own credibility, Hollands warned.
That could leave a massive hole in the nation’s finances, forcing her to come back for even more tax hikes later. When will this end?