WITH Chancellor Rachel Reeves set to announce her Autumn Budget next month, many will be wondering how it’s going to hit their pockets.
There are fears taxes will go up for households across the UK, as the government tries to fill a £30billion black hole in the public finances.
Experts from Oxford Economists have this week published a report revealing an “extensive menu” of measures they predict could be announced by Labour on November 26.
In some good news, they say Chancellor is unlikely to raise income tax or National Insurance for workers in the UK, which would come as a huge blow to millions of households.
Ms Reeves has already ruled out hiking these taxes, as it would mean breaking Labour’s manifesto promise not to increase taxes for working people.
“We regard a freeze in income tax allowances and NICs thresholds a near certainty,” Oxford Economics senior advisor Michael Saunders said.
“[But] in our view, it’s highly unlikely that the Chancellor will lift the main rates of income tax, VAT, employees’ NICs or corporation tax, given Labour’s manifesto commitments.”
These are the three tax raids Oxford Economists believe Ms Reeves could hit households with next month.
Income tax freeze extension
The Chancellor is widely expected to announce a stealth tax raid on millions of workers in the Budget, by extending the freeze on income tax thresholds.
The thresholds, which determine how much employees must earn before they start paying income tax, were frozen by the Tory government in 2021 and are set to remain at these levels until April 2028.
However, the economists predict the freeze will be extended for another two years to 2029/2030, in a move that would raise around £10billion for the public purse.
This would force millions into paying more tax as their income rises with inflation – a concept known as fiscal drag.
Ms Reeves refused to rule out extending the freeze at the Labour party conference this week.
It’s believed the move could leave workers hundreds of pounds less well off.
According to recent data from Quilter, someone earning between £20k to £40k will end up £214 more in income tax by 2029/30.
For someone earning £45,000, the salary growth pushes part of their income into the 40% tax band, resulting in a sharper increase in tax paid.
In this case, the worker would pay an extra £317 in 2028/29 and £643 in 2029/30.
Pension tax relief
Another measure on the cards is a shake-up to pension tax relief for private pensions.
Currently, when you save into a pension, the government adds back the income tax you paid on that money, giving you tax relief at your personal income tax rate.
For basic-rate taxpayers, this is a 20% top-up, meaning an £80 contribution is boosted to £100 in their pot.
However, higher-rate taxpayers get 40% relief, turning a £60 contribution into £100, while top earners get 45%.
The economists say Ms Reeves could raise £3billion by introducing a uniform 30% rate for tax relief on private pensions.
This would come as a blow to the country’s highest earners, who would see their current tax relief of 45% slashed.
However, lower earners – those earning up to £50,270 – would have their tax relief boosted.
Tax-free lump sum pension ceiling
The economists believe the Chancellor could also target the tax-free pension lump sum to boost public finances.
This is the maximum amount people can withdraw from their pension without paying tax.
Currently you can withdraw up to 25% of your pot tax-free when you reach the age of 55, up to a limit of £268,000.
But economists believe this limit could be cut to £100,000, in a move that would raise £2billion for the Treasury.
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