Chancellor Rachel Reeves set to unveil tax-hiking budget

Rachel Reeves is set to unveil her second, much-anticipated UK budget in the House of Commons on Wednesday.

The chancellor told MPs on Monday night that the Budget will focus on three priorities: “Cutting the cost of living, cutting NHS waiting lists and cutting the cost of debt.”

In a last minute call for unity, Reeves suggested that Labour backbenchers are likely to be content with 95% of the Budget, but she also hinted at difficult political decisions yet to be announced.

What tax changes could Rachel Reeves make?

Freezing income tax revenue thresholds for another two years – Scotland sets its own rates
A full new state pension set to increase to a level above the threshold
A ‘mansion tax’ on properties worth more than £2 million
Limits on how much employees can put into their pensions under salary sacrifice schemes
A gambling tax
A crackdown on small company tax avoidance to close a multi-billion pound tax gap
A pay-per-mile charging for electric vehicles

She also described the Budget as a “package” not a “pick ‘n’ mix”, and she urged her fellow Labour MPs to back the whole thing rather than single out parts they dislike for criticism.

There is wide speculation that Labour is planning to raise taxes on Wednesday in an effort to bridge a multibillion-pound gap in Government spending plans.

Earlier this month, she dropped plans to hike the headline rate of income tax, something which would have broken a Labour manifesto pledge, after receiving economic forecasts which were not quite as grim as first feared.

Extending a freeze on personal tax thresholds for a further two years would raise around £8.3 billion a year by 2029-30, the Institute for Fiscal Studies (IFS) said.

As incomes rise beyond the £12,570 threshold, the economic think tank said it would result in around 960,000 more people paying income tax, with around 790,000 more people paying the 40p higher rate. Scotland sets its own income tax rates.

Pensioners could also be hit, with the full new state pension set to increase to a level above the threshold.

Reeves is also said to be considering limits on how much employees can put into their pensions under salary sacrifice schemes before it becomes subject to national insurance.

Also among the dozen tax rises reportedly being considered are a so-called “mansion tax” on properties worth more than £2 million, a gambling levy, and pay-per-mile charging for electric vehicles.

She is expected to scrap the two-child benefit cap, a move estimated to cost between £3 billion and £3.5 billion by the end of the Parliament.

Several newspapers also reported Reeves is mulling over a continued freeze in fuel duty, set to cost a further £3 billion.

Shadow housing secretary Sir James Cleverly has predicted “a whole load of stealth taxes”.

“What we’re seeing from the Labour Party is these weird contortions because Rachel Reeves is trying to ramp up taxes,” Cleverly told Times Radio.

“The so-called promises that she and Keir Starmer made during the election are boxing her in.

“So I suspect what we’re going to see in [Wednesday’s] Budget is a whole load of stealth taxes, a whole load of ways to try and squeeze more money out of hardworking people, including people who don’t live in mansions, but they just live in family houses that happen now to have increased in value.”

Scottish Labour leader Anas Sarwar has called the Budget “a moment to restore confidence and put this Labour government back on track”.

He previously urged Reeves to use her budget to abolish the two-child benefit cap in an effort to confront child poverty and to lower energy bills nationwide.

“This has to be a Labour budget, with Labour choices, and Labour values at its heart,” Sarwar said.