We crunch Rachel Reeves’s Budget blitz. The numbers are terrifying – see what YOU will pay
The Chancellor needs £30billion next month and that’s a nightmare for taxpayers.
Rachel Reeves’s number is up: Chancellor has no easy Budget tax hike options now (Image: Getty)
Rachel Reeves can’t raise that kind of money by tinkering around the edges. She may have to break Labour’s manifesto pledges and hike income tax, National Insurance or VAT – and possibly all three.
That STILL might not be enough. Which puts our pension savings on the frontline too. With the help of artificial intelligence (AI), I’ve worked through some tax models to highlight the main lines of attack. They would wreak carnage.
Option A: Broad tax rises. This would see Reeves raise four major taxes, two of them directly breaching Labour’s manifesto promises.
1. Extend the income-tax threshold freeze. Personal allowances are already frozen until 2028. Extending that to 2030 would drag more workers and pensioners into higher tax bands as incomes rise. Sum raised: £8billion.
2. Raise the basic rate of income tax by 1p. This would hit both workers and the growing army of pensioners who pay tax. Sum raised: £8billion.
3. Increase VAT by 1p. VAT hits everyone, rich or poor, on almost everything they buy – including energy bills. It would cause fury but raise cash fast. Sum raised: £8billion.
4. Cap the 25% pension tax-free lump sum. Cutting the current £268,275 limit on tax-free cash to £100,000 would be hugely unpopular. Millions will feel cheated because they invested expecting to get this. Sum raised: £2billion.
My verdict: Any one of these moves would be hugely controversial. Together they’d spark a massive voter backlash. Worse, they’d still only raise around £26billion, leaving Reeves £4billion short.
Option B: Targeted pensions raid. This would see Reeves launch an all-out assault on pensions while hiking six major personal taxes in total.
1. Extend income-tax threshold freeze. This one pops up again. My modelling suggests this is inescapable if Reeves wants to hit her target. Sum raised: £8billion.
2. Slash pension tax relief. HMRC currently grants tax relief on pension contributions at 20%, 40% or 45%, depending on income. Higher earners clearly benefit. Setting a single flat rate of 30% would save money and help lower earners, although technically it might be a bit tricky. Sum raised: £3billion.
3. Cap the 25% pension lump sum. Worryingly, this also keeps popping up in my modelling. This raid would be hated but hard for Reeves to avoid. Sum raised: £3billion.
4. Hike National Insurance (NI) by 1p. Another manifesto breach, hitting “working people” directly but raising vast sums. Sum raised: £5billion.
5. Cap lifetime inheritance tax gifting. Setting a ceiling on tax-free gifts would hit pensioners, homeowners and their loved ones. Sum raised: £1billion.
6. Hike council tax on high-value homes. A direct hit on property owners, especially in London and the South East, but lucrative for the Treasury. Sum raised: £4billion.
My verdict: These figures are just as terrifying. They would make this Budget even more brutal than the last, an all-out war on wealth. Pensioners wouldn’t just be on the front line, they’d be the cannon fodder. Even then, Reeves still needs another £6billion.
AI keeps throwing up the same few taxes, again and again. However, Reeves does have options to reduce the hit on individuals. She could impose NI on employer pension contributions, raising £6billion, but that would punish firms soon after last year’s £25billion tax blitz destroyed jobs and confidence.
She could raise £2billion by taxing partnerships of lawyers and GPs, and billions more by hiking corporation tax, or slapping a windfall levy on energy giants and the big banks such as Barclays and Lloyds.
Whatever she does, the result will be the same: weaker growth, shattered confidence, furious voters and millions feeling poorer at the worst possible time. Reeves will feel their wrath.
Whether you’re a worker or a pensioner, the Treasury has slapped a target on your back. This is speculation today. We will know for sure on November 26.
