Discussions are underway involving Rachel Reeves concerning a potential breach of Labour’s manifesto promises through an increase in income tax, according to recent claims made on Thursday night.
The Chancellor is contemplating a series of tax hikes as she strategizes on how to address a looming £30 billion deficit in public finances expected next month.
One proposed measure includes raising income tax by 1p on the basic rate, a move projected to generate over £8 billion in revenue.
Alternatively, the Chancellor might consider increasing the higher or additional tax rates.
These tax rates, which kick in at earnings of approximately £50,000 and £125,000 per year, could potentially yield about £2 billion and £230 million, respectively.
Additionally, suggestions have been made to introduce new environmental taxes on flights, targeting holidaymakers directly.
The Treasury is said to believe that hiking income tax could be the only way to ensure the Chancellor raises enough money to prevent her from returning for more tax grabs for the remainder of this parliament.
But if Ms Reeves does so, as she is reportedly considering, then it would break one of Labour’s key manifesto pledges and risk a major political backlash.
Rachel Reeves, pictured on Wednesday, is in active discussions over breaking Labour’s manifesto by raising income tax in the Budget, it was claimed on Thursday night
‘There is a very live debate going on right now among those planning the budget about how bold we want to be on the headroom,’ an insider told The Guardian.
‘No one wants it to be £10bn again but there is an argument we go much higher, which will mean we don’t have to come back and do this again and might have space to cut taxes before the budget.
‘If we go down that route, however, it makes it more likely that we have to raise income tax – that is the discussion that is going on at the moment.’
Reeves is thought to be worried about the consequences of breaking another pledge, given she did so to raise national insurance last year.
She is facing a challenging budget after the Office for Budget Responsibility (OBR) decided to downgrade its estimates for Britain’s economic productivity, costing the Chancellor around £20billion a year.
The reversal of the winter fuel cut, cuts to welfare payments and a likely move to end the two-child benefit cap will also pile further pressure on the treasury.
The Chancellor has also been told to consider a range of levies on aviation to ensure the sector pays ‘its fair share’ towards Britain’s Net Zero targets, according to a new report.
Ms Reeves should also consider a ‘wider review of aviation taxation to ensure that the “polluter pays” principle is upheld’, the Environmental Audit Committee report adds.
The Chancellor is eyeing up a series of tax raids as she seeks to fill a £30billion black hole in the public finances next month (pictured with Sir Keir Starmer last month)
Ministers have already ruled out measures to reduce aviation emissions by limiting the number of flights available, so the EAC says Labour must now ‘demonstrate what alternative tools it will use instead’.
The report suggests that this could include the Treasury imposing a range of levies, possibly including a ‘carbon tax’ or adding VAT on jet fuel, so that the aviation industry will be ‘incentivised to decrease emissions’.
It warns that without implementing such measures the Government will struggle to achieve its legally-binding targets of hitting Net Zero by 2050.
However there are fears that taxing the aviation industry could hit holidaymakers in the pocket, with increased costs added on to the price of air fares.
The report says that the Department for Transport ‘accepts that additional costs borne through decarbonisation measures may have an indirect impact on aviation passenger demand’.
Meanwhile, Brits who resort to private healthcare have been warned they could be hammered in the Budget.
Reeves is understood to be looking at targeting so-called ‘Limited Liability Partnerships’ – LLPs – as she desperately tries to bring in more cash.
But although supporters stress that applying a national insurance to the arrangements would catch the wealthiest lawyers and bring in £2bn, doctors have raised concerns that it will have a wider impact.
Extra costs will ‘inevitably’ be passed on to millions of people who use private healthcare, according to the BMA.
Numbers going private have been rising amid widespread dissatisfaction with problems accessing GPs and long NHS waiting lists.
Estimates have suggested eight million people – around 11.8 per cent of the population – are covered by insurance policies. Many others pay for treatment ad hoc.
It emerged on Wednesday that Ms Reeves is looking at tightening rules on partnerships as she looks to fill the hole in the public finances.
Currently the structures are not subject to employer national insurance contributions of 15 per cent, so have big tax advantages and are used by about 190,000 professionals.
A report by CenTax – pointed to by government insiders – suggested changing tax rules for all kinds of partnerships.
It estimated the change would hit 96 per cent of GP partners, raising £250million for the Treasury, although it flagged the measure could be offset to avoid increasing their tax bill.
Any such raid would inflame tensions between the medical profession and the government, amid bitter clashes and strike threats over pay.
However, the rumours seemed to take the Department of Health by surprise on Wednesday.
After that it emerged that the Treasury is focusing on LLPs – which most NHS GPs are restricted from using.
The Daily Mail was told last month that the Chancellor was considering levying VAT on private healthcare, but that prospect was immediately killed off by Health Secretary Wes Streeting in interviews.
A BMA spokesman said: ‘Extending employer National Insurance to LLPs would deal a serious blow to doctors working in private practice within LLP structures.
‘Applying a new 15 per cent charge for LLPs would substantially increase the tax rate for these doctors beyond 40 per cent, highly likely eroding the financial viability of many small, doctor-led practices.
‘This added cost will inevitably be passed on to patients, making private care less accessible and discouraging doctors from continuing or entering private practice.’
If Reeves hikes income tax then it would break one of Labour’s key manifesto pledges and risk a major political backlash
Dan Neidle of Tax Policy Associates said it would be ‘insane’ to tax partners in LLPs but not other types of partnership.
He suggested it would be ‘unfair’ to make ‘some people pay more tax than others for a random reason’.
LLPs would also likely respond by converting to general or foreign partnerships.
‘Can’t believe they’d do that,’ Mr Neidle added about the proposal.
LLPs cannot presently legally hold General Medical Services (GMS) or Personal Medical Services (PMS) contracts.
The BMA said GP locums could in theory be affected if they have grouped together into an LLP.
