British finance minister Rachel Reeves faces a tough task to raise the tax revenues she needs to invest more in public services and new infrastructure in her Oct. 30 budget.
With the tax burden at its highest since just after World War Two, Prime Minister Keir Starmer's Labour Party promised voters in July's election it would not put up taxes on "working people" and has also ruled out increasing the main tax rate on company profits.
Starmer has said most of the burden will fall on "those with the broadest shoulders".
Below are some of Reeves' options for raising taxes:
EMPLOYER SOCIAL SECURITY CONTRIBUTIONS
Reeves and Starmer have declined to rule out raising the National Insurance Contributions that businesses pay to fund the social security system.
Employers paid 60% of the 179 billion pounds ($233 billion) raised by NICs in the last tax year, the second-largest revenue-raiser after income tax.
The Institute for Fiscal Studies think tank says a 1 percentage-point increase in the rate of employer NICs would raise at least 4.5 billion pounds a year but would inevitably hit employees via smaller wage increases or less hiring.
CAPITAL GAINS AND DIVIDEND TAX
Capital gains tax raised 15 billion pounds in the last financial year. Worth only around 4% of receipts from all taxes on income, Reeves is widely expected to up that figure.
CGT is charged at a much lower rate than the upper rates of income tax, reflecting past attempts to encourage entrepreneurship. But this led hundreds of thousands of self-employed people to convert ordinary income into capital gains.
The Resolution Foundation think tank said Reeves could increase CGT rates but soften the blow by restoring indexation so capital gains are taxed only after inflation. Together, these measures could raise 7.5 billion pounds, it estimated.
Reeves could also increase taxes on dividends.
RAISE TAXES ON WORKING PEOPLE
Reeves could avoid the accounting headache of piecemeal tax increases by breaking Labour's pre-election promises and raising income tax, employee's national insurance contributions or VAT.
While politically explosive, some economists say it would be the simplest way to raise large sums in a transparent way.
But it would represent a big gamble that angry voters could be won over by improved public services and higher investment.
The Financial Times reported on Friday that Reeves was expected to prolong a freeze on income tax thresholds beyond 2028, in a move that could raise 7 billion pounds ($9.1 billion) a year.
INHERITANCE TAX
Past governments have shied away from big reforms to inheritance tax which raises about 7.5 billion pounds per year but is paid on only 4% of estates.
IHT is charged at 40% on the value of estates above 325,000 pounds, a threshold which has not changed since 2009.
There are additional allowances for transferring family homes to younger generations.
The IFS thinks around 2 billion pounds a year could be raised by curbing some IHT allowances which exempt assets such as family businesses, farmland, woodland and pension savings.
NON-DOMS
Starmer's Labour Party has said it will go further than the previous Conservative government in raising more money from non-domiciled residents by expanding inheritance tax to include foreign assets held in trusts.
But media reports have said the new government was reconsidering its plans on fears that some of the wealthy people could leave the country.
Some 74,000 non-domiciled taxpayers paid 8.9 billion pounds of UK income tax, national insurance and capital gains tax in the 2022/23 financial year, according to government data, but it is not possible to measure their foreign income.
PENSION REFORMS
Reeves could cut tax relief for private pension savings such as the tax-free lump sum which enables people to withdraw 25% of their pension without paying tax, up to a maximum of 268,275 pounds.
The IFS estimates that removing this allowance completely could raise 5.5 billion pounds a year over the long run.
The generosity of tax relief on pension contributions for higher-rate taxpayers could be reduced by introducing a flat rate instead.
Employers could also be taxed on contributions they make to workers' pensions.
FUEL DUTY
Duty paid on motor fuels has been frozen since 2011, except for a temporary cut in the 2022/23 tax year, as governments feared a backlash from drivers especially in rural areas.
In the last budget published in March under the previous Conservative government, the latest cancellation of the scheduled fuel duty rise cost around 3 billion pounds in 2024/25.
($1 = 0.7672 pounds)
