𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Rachel Reeves is set to deliver her Budget on Wednesday, following a flurry of speculation about which taxes she will increase to help balance the books.

Here experts examine some of the measures the Chancellor might announce as she attempts to plug a gap in the public finances and build up a larger buffer to avoid continually asking for more taxpayers’ money.

Income tax:

After a press conference and behind-the-scenes briefings aimed at preparing the nation for a manifesto-breaking increase in income tax, Ms Reeves then scrapped the idea of becoming the first Chancellor in half a century to take that step.

The measure was removed from the “hokey cokey budget”, as Speaker Sir Lindsay Hoyle described it, after the Treasury reportedly received forecasts from the budget watchdog that were not as bleak as initially feared.

Instead, she may now choose to extend the existing freeze on the income tax thresholds, which, if she also kept national insurance thresholds at their current rate, would generate around £8.3 billion a year for the Exchequer in 2029/30.

By not raising the thresholds, she will benefit from a process known as “fiscal drag”, where as wages rise, individuals are pulled into paying tax for the first time or moved into a higher rate.

Increase in minimum wage:

The Government has announced this week that minimum wage rates will rise next year, providing a pay increase to millions of workers.

From next April, the National Living Wage will see a 4.1% increase to £12.71 an hour for eligible workers aged 21 and over, according to Government announcements. This will boost the gross annual earnings of a full-time worker on this rate by £900, benefiting approximately 2.4 million low-paid workers.

The National Minimum Wage rate for those aged between 18 to 20 years will rise by 8.5% to £10.85 an hour, reducing the gap with the National Living Wage.

For those aged 16 to 17 and apprentices, the National Minimum Wage will see a 6% increase to £8 an hour.

Rail fares

They will be frozen in the Budget, saving commuters on more expensive routes over £300 a year. This is one of several measures aimed at easing the cost of living despite the increased tax burden many individuals and businesses are likely to face.

Prescriptions

The cost of an NHS prescription in England will remain at £9.90.

Tax for electric vehicles

The Chancellor is reportedly considering a 3p per mile tax for electric vehicles as she seeks to protect revenues as people transition away from petrol and diesel, and the fuel duty that contributes to the Exchequer.

According to reports, Ms Reeves will announce that she is maintaining the 5p cut in fuel duty, which was introduced in 2022, and ensure it does not rise in line with inflation.

EV buyer subsidy

She plans to add £1.3 billion to a grant that reduces the price of an electric vehicle by up to £3,750 as part of a package that will also see £200 million allocated towards the rollout of charging points.

Tax hike on high-value homes

A new levy could be imposed on some of the most valuable homes in what has been dubbed by some as a “mansion tax”. This move would reportedly reassess some of the most valuable properties across council tax bands F, G and H and impose a new surcharge on 100,000 of them, with the threshold starting at £2 million.

Salary sacrifice

The Chancellor might set limits on how much employees can put into their pensions under salary sacrifice schemes before it becomes subject to national insurance. Reports suggest she could cap this at £2,000 a year, which would decrease how much people save in their pension pots and reduce take-home pay for those who use the scheme to stay in a lower tax band.

Two-child benefit cap

As pressure mounts, Ms Reeves is expected to abolish the limit that restricts child tax credit and universal credit to the first two children in most households. Estimates vary on how much this would cost, with the Resolution Foundation estimating around £3.5 billion by the end of this Parliament (2029/30), while the Child Poverty Action Group and Joseph Rowntree Foundation have lower calculations of around £3 billion by then.

Benefits fraud crackdown

Ms Reeves plans to raise £1.2 billion by March 2031 by extending a crackdown on fraudulent and mistaken universal credit payments through the targeted case review (TCR) scheme.

Tourism tax

Visitors to English cities and regions could be hit with a new tourist tax to fund local projects, as the Government has announced that mayors will have the power to impose a “modest” charge on visitors staying in hotels, B&Bs, guest houses and holiday lets.

Despite regional leaders, including London Mayor Sir Sadiq Khan and Greater Manchester’s Andy Burnham, calling for this measure, the hospitality industry body UKHospitality has condemned the move as “damaging”.

Sugar tax on pre-packaged milkshakes and lattes

Health Secretary Wes Streeting announced this week that these products will now fall under the sugar tax, ending the exemption for milk-based beverages from the existing tax on sugary drinks.

This change will impact products such as packaged milkshakes, coffees and sweetened yoghurt drinks, but not drinks made on site in cafes and restaurants.

Cash Isa limit reduction

Reports suggest that Ms Reeves may cut the annual cash ISA limit from £20,000 to £12,000.