Rachel Reeves, the new Labour party Chancellor of the Exchequer, is preparing to role out an ambitious series of tax reforms. These transformations will need to be accompanied by ambitious social measures, starting with the 2025 Budget. As we look ahead to scheduled proposals for next April, these recommendations are a big step toward confronting our nation’s urgent economic needs. The UK’s national living wage recently underwent a historic raise. On top of that, there have been changes in index tax allowances and new taxes on high-value properties and sugary foods.
By far the biggest of these is the £1 per hour (4.1%) increase to the national living wage. It will now be increasing to £12.71 an hour! This 50 per cent hike is particularly ill-timed as working and middle-class households continue to face escalating pressures from the cost of living. Reeves is reportedly serious about cutting the lavishly generous, tax-free ISA (Individual Savings Account) allowance to the bone. The maximum level would then be able to fall annually from £20,000 to £12,000. These amendments are a clear signal of a new fiscal policy direction focused on establishing the balance between public spending and the generation of revenue.
Reeves has also suggested a deadly “mansion tax” on homes worth more than £2 million. While laudable in intention, this hugely consequential move may ultimately prove disastrous for homeowners throughout the UK. This proposal would be the first successful opportunity in over thirty years for its introduction. It shows an impressive new willingness to pursue wealth redistribution through progressive taxation on the most high-value assets.
National Living Wage Increase and Tax Thresholds
The national living wage will rise by 4.1%, up to £12.71 an hour. This courageous decision IS going to help all of the workers in the UK, millions of them at that. This increase is intended to bring some financial relief during this time of persistent inflation. That’s why providing workers with direct support to offset these increasing costs is necessary. This change signals the federal government’s intent to raise wage floors accessible to low and middle-income wage earners.
The plan to freeze income tax thresholds for another two years comes on the heels of a four-year freeze. This extension is problematic, especially from a taxpayer protection perspective. As these wages increase, taxpayers will inevitably pass these thresholds and find themselves in higher tax brackets. This change is in reality a tax increase on them since they have no additional money to spend.
The Chancellor mooted reducing the inheritance tax taper to three years. This would dramatically increase access for families in how they administer their loved ones’ estates. Such a change would bring in hundreds of millions of pounds of additional income for the Treasury. People have to start thinking about how they plan for their financial future in a whole new way.
Housing and Property Tax Reforms
Reeves’ proposals extend beyond income and savings taxes. She’s going to fully revalue the 2.4 million most expensive homes across the UK, albeit slowly over time. This comprehensive revaluation will rightfully bring stagnant property taxes up to today’s market realities. It seeks to raise additional revenue specifically designated to support public infrastructure and services. The Chancellor has just announced plans to increase council tax bands F, G, and H. Such a change would raise approximately £400m to £450m for councils.
The introduction of a “mansion tax” on homes valued at over £2 million signifies a shift toward more progressive taxation. This move is likely to face scrutiny and debate as it seeks to address wealth disparities while raising significant funds for public expenditures.
Reeves has promised to introduce a settling-up payment for anyone selling UK assets before moving overseas. We estimate this new tax would raise £4 billion+. It is designed to help ensure that the companies who profit from UK development assistance resources pay their share into the UK public finances.
New Levies on Sugary Products and Private Hire Vehicles
In an effort to promote public health and generate additional revenue, Reeves has introduced a milkshake tax that will bring milk-based products into the sugar tax regime by 2028. This policy not only helps to fight an increasing prevalence of obesity, but generates roughly £100 million of income to the UK’s tax receipts.
The budget contains a new taxi tax on private hire vehicles, expected to raise as much as £750 million. This measure directly addresses the worry that government is unable to get a handle on controlling the private hire trade. Meanwhile, it increases investments in transit.
In her budget proposals so far, Reeves has taken the further step of withdrawing socially and environmentally regressive levies from household electricity bills. Our joint decision will relieve the financial burden on families while making energy costs simpler to understand as consumers adjust to new market realities.