With the Autumn Budget fast approaching, new reports indicate that Chancellor Rachel Reeves is planning to reform Council Tax in order to help plug a £30 billion hole in the nation’s finances. The news comes as both the Chancellor and Prime Minister Keir Starmer recently refused to rule out breaking Labour manifesto tax pledges in the Budget on 26 November. Here, we take a look at these issues.
Potential changes to Council Tax
According to reports, the Chancellor is considering an overhaul of the Council Tax system to help fill a significant hole in the UK public finances. Speculation is rife as to how Ms Reeves will change Council Tax – some experts suggest the Chancellor is exploring proposals to double rates and others believe new Council Tax bands targeting expensive homes will be created.
The Institute for Fiscal Studies (IFS) recently stated that property taxation is in ‘desperate need of reform’. The IFS said that raising revenue by increasing Council Tax is possible, and suggested that the Chancellor may choose to raise the tax across the board or for high-band properties. It also said that ‘it would be much better to raise any additional revenue from a reformed system’.
Government sources reportedly stated that Ms Reeves believes reforming Council Tax is ‘the least worst option’ for raising revenue. In a comment to the Financial Times, a source said: ‘It is vital for the political balance of the Budget to show everyone is paying their fair share.’
Responding to the speculation, Ruth Curtice, Chief Executive of think tank the Resolution Foundation, said: ‘On its own it wouldn’t sort out the mess that is property taxation, but we do already pay council taxes and you’d be asking the wealthy to pay a bit more.’
Breaking manifesto pledges
During a recent Prime Minister’s Questions session, the Prime Minister declined to stick by Labour’s manifesto commitment not to raise the ‘big three’ taxes - Income Tax, National Insurance (NI) and VAT. Kemi Badenoch, Leader of the Conservative Party, suggested that the Prime Minister and the Chancellor are planning to unveil tax rises at the Budget.
Chancellor refuses to rule out tax rises
In an unprecedented recent pre-Budget speech, the Chancellor set out the challenges facing the government, and highlighted where her priorities lie in regard to Autumn Budget measures. Beginning her speech, Ms Reeves stated she will ‘make the choices necessary to deliver strong foundations for the economy’, and said that the government's priorities are protecting the NHS; reducing national debt; and improving the cost of living.
The Chancellor said: ‘I want people to understand the circumstances we are facing, the principles guiding my choices, and why I believe they will be the right choices for our country.
‘The choices I make in the Budget this month will be focused on getting inflation falling and creating the conditions for interest rate cuts to support economic growth and improve the cost of living.’
Meanwhile, the Resolution Foundation recently published its Autumn Budget preview, in which it has urged the Chancellor to implement tax rises of £26 billion. It said that such rises mean avoiding touching Income Tax, NI and VAT ‘risks doing more harm than good’. The Foundation called for an increase of 2p to Income Tax to be offset against a 2p cut in employee NI, which it said will help raise £6 billion overall ‘whilst protecting workers from tax rises’.
The Autumn Budget
The Chancellor will deliver the Autumn Budget to Parliament on 26 November.
Whatever changes are made, Mercia’s tax experts will be watching and will provide detailed analysis of the day’s announcements. Keep your clients up to date with our range of digital and printed products.