When he was chancellor, Rishi Sunak’s Treasury had routinely leaked many elements of his budgets beforehand, and there was a similar wealth of informed speculation about how he, as Prime Minister, could bridge the estimated £60 billion gap in the UK’s public finances in a statement Autumn next week.
With so much financial misery to be expected, there is benefit to Sunak and his advisor, Jeremy Hunt, in coming up with possible options to gauge the reaction — and it’s possible that some of the ideas mentioned in the papers never make the cut. But here are some ideas on the table, in terms of tax increases and spending cuts, and the likelihood of their implementation.
Concealment tax increase
Perhaps the easiest tax increase a government could make: Failing to upgrade thresholds of the tax range in line with inflation, or at all, the additional revenue could run into the billions. Most likely it is the income tax limits, which will bring the most additional income. Among the fees expected to be subject to “financial stress,” as it is also known, are inheritance tax, capital gains tax and profit tax exemption.
political influence: It wouldn’t be popular with low-tax conservatives, but after the collapse of Liz Truss’s financial plan, there was more tolerance than usual for such ideas.
Financial Impact: There is big money at stake. While a freeze on inheritance tax, the “zero rate range” from 2025-26 to 2027-28, would raise an additional £500m, the Treasury would gain £30bn from high inflation if Hunt extended the freeze on income tax ranges.
possibility: 4/5
Reductions in capital spending
One temptation to cancel or scale back large projects is that you can type billions from the government’s balance sheet with just a few keystrokes. On top of that, you’re getting rid of something that doesn’t exist yet, so voters can easily forget it. The projects in the Treasury’s range reportedly include the Sizewell C nuclear power plant, HS2 Elements, and Northern Powerhouse Rail.
political influence: Potentially toxic, especially among MPs whose regions have been affected, and who will argue that long-term growth and productivity will be affected by such cuts.
Financial Impact: Although it can be tempting when tens of billions of pounds can be savedAnd the Delaying or canceling large infrastructure projects, especially if they reduce the UK’s dependence on fossil fuels, would be a major blow to future productivity and competitiveness of the UK economy.
Possibility of some cuts: 4/5.
From canceling a major project: 2/5
Reductions in the real value of benefits or pensions
With working age benefits in Great Britain costing nearly £88 billion a year, and spending on pensions and retirement age benefits north of £110 billion, the savings are evident if one or both are raised, say, by 5% instead of Present. The inflation level is close to 10%. While it is broadly similar in approach to a stealth tax increase, it will be much more straightforward and controversial.
political influence: Difficult, which is why there is a lot of speculation that Hunt will increase both through inflation. But the savings cannot be ignored.
Financial Impact: For pensions, restricting the annual increase in earnings growth would save £6 billion in each of the next two financial years, while working age benefits would be £7 billion less than if they were linked to higher inflation.
possibility: 2/5
Kind of increase to the highest tax rate
Weeks after Kwasi Kwarteng announced the abolition of the top 45p income tax rate in the bad-starred Truss mini-budget, there is talk that the rate could now rise – although the most likely outcome is a current £150,000 cut when people start paying higher rate, perhaps for a large amount.
political influence: Kwarteng and Truss have hailed the 45p rate scrap as removing the tax on ambition, and some Conservative MPs will strongly dislike such a move by Hunt. But as Truss discovered, cutting taxes on the wealthy is not very popular elsewhere.
Financial Impact: There is only modest gain for the Treasury from dragging more people into the 45p tax rate. When annual revenue from all taxpayers over £150,000 is around £2 billion a year, changing the threshold will only raise hundreds of millions of pounds.
Likelihood of having a minimum: 3/5
Expanded windfall tax
Between her campaign to become prime minister and her brief start at number 10, Truss changed her mind about the energy company’s surprise Sunak tax, which she had initially condemned as a disincentive to investment. The version implemented under Sunak had massive takedowns for new investments in fossil fuels, meaning Shell paid nothing despite its £26 billion profit. Alok Sharma, president of Cop26, is among those who have called for a revised version.
political influence: Sunak, like Truss, warned against a Labor-style surprise tax as a burden on the establishment. Much like Truss, if he makes a drastic change, he is likely to be very popular, unlike some Tory MPs. But it doesn’t look like a sonak.
Financial Impact: There is no evidence that energy companies will cut investment if they are forced to give up some of their windfall gains. Wider taxation of the industry with fewer opt-outs could increase revenue from £5 billion to £10 billion.
possibility: 2/5
Delaying the social welfare ceiling
This, although imperfect in the outcome, was one of Boris Johnson’s main policies, and was due to come into effect in October 2023. Some reports say that Sunak wants to delay this by two years, possibly permanently, saving up to two billion pounds. sterling. general. However, this would represent another failure to control one of the UK’s most pressing chronic policy problems.
political influence: It is likely to cause a storm among Tory voters and therefore MPs, given that maximally ambitious in preventing the elderly from needing to sell their homes to pay for care disproportionately helps people in affluent areas.
Financial Impact: The proposals for the now-cancelled 1.25 percentage point increase in National Insurance contributions to drive increased health spending and more money for social care, while capping care costs. NHS funding is safe, but social care appears to be losing out again, although the elderly and the disabled will find themselves in hospital longer than they need to, adding to NHS bills.
possibility: 3/5
Changes to the tax status of non-residents
While outright eliminating the ability of people with overseas tax jurisdiction to avoid paying UK tax on their income – something Sunak’s wife has enjoyed for a while – seems unlikely, there has been speculation about fairly significant changes, such as a reduction in the period allowed from 15 to five years, potentially raising £1.6 billion annually.
political influence: It’s not likely to alarm voters, but it could alarm many donors outside the Conservative Party, a demographic with which the party has little desire to quarrel.
Financial Impact: Many nurses brought in from abroad claim non-resident status. They are filling low-paying NHS vacancies but are rejecting Treasury tax receipts. Difficulties separating the good from the bad usually frustrate the changes.
possibility: 2/5
Council tax increases
Not directly increasing treasury taxes, as this will be done by local authorities. But with grants to councils frozen, one idea under consideration is to allow a council tax increase of 3% or more without a referendum, as is currently required.
political influence: It may not be popular, but as with much of George Osborne’s 2010-era austerity, attributing pain to councils is tempting for the Treasury.
Financial Impact: With councils claiming they were facing a £15bn budget shortfall from Osborne’s austerity measures, they were again told they could only make up for their losses from Supreme Council tax bills that would cripple many services.
possibility: 3/5