With less than six weeks until the Budget on 28 October, speculation continues over how the Government will balance its fiscal commitments against growing pressure on the public finances. While ministers have ruled out increases to the main rates of Income Tax, VAT and Employee National Insurance, media reports suggest that changes to Capital Gains Tax, Property Taxes and sector-specific levies remain under consideration.
A lot can happen in six weeks, as world affairs continue to demonstrate. We also have the party conferences to get through. However, we have set out below a summary of what appears to be under discussion, based on media reporting and political commentary circulating at the time of writing.
We have no idea what is ultimately going to happen. The comments below are based solely on media reporting and should not be taken as an indication of what we expect the Government to announce.
Our position remains the same: do not undertake planning based on trying to predict what might happen. Only undertake planning that you would undertake in any event.
The Prime Minister has described the public finances as challenging and has declined to rule out tax rises. However, he has also said that the Government will honour Labour’s commitments not to raise the basic, higher or additional rates of Income Tax, VAT or Employee National Insurance, and to cap the main rate of Corporation Tax at 25%.
The Chancellor, John Healey, has said that the Budget will be built on “fiscal discipline”, meet the Government’s fiscal rules and move “money and power out of Westminster” into communities across Britain.
Since taking office, the Prime Minister has announced several cost-of-living measures aimed at providing financial relief to households and supporting businesses. These include removing VAT from electricity bills and reducing Business Rates for pubs and clubs. The Government also faces other cost pressures, including increased defence spending and the impact of inflation.
CAPITAL GAINS TAX AND WEALTH TAX
Capital Gains Tax (CGT) has become one of the most discussed areas of potential tax reform ahead of the Budget. Former Labour leader Lord Kinnock has called for CGT rates to be aligned with Income Tax rates, arguing that this would be a “fair” reform. Wes Streeting, now Secretary of State for Defence, described the proposal as a “wealth tax that works” when he was campaigning for the party leadership earlier this year.
According to the Centre for the Analysis of Taxation, equalising the rates could raise around £14 billion a year.
A Wealth Club survey, reported by The Times, found that 61% of investors with assets of £1 million or more had considered moving overseas amid concerns about the tax burden and possible tax rises in the Budget. Almost all respondents expected taxes to increase over the coming year. This has added to warnings that further taxes on wealth and investment could encourage capital and entrepreneurs to leave the UK.
Lord Jim O’Neill, former Treasury minister and economist, who turned down a role in the Government, has cautioned against what he described as a “stupid” increase in CGT, arguing that it could encourage entrepreneurs to leave the country and damage economic growth.
In an interview with the Financial Times, the Prime Minister rejected the suggestion that he would “tax the wealthy out of Britain”, saying: “we need wealth creation and the best wealth creators not just forging their path here, but staying here”.
Separately, the Financial Times has reported that Business Secretary Jonathan Reynolds has privately reassured business leaders that the Government will not pursue an “exit tax” on UK companies that float abroad or are acquired overseas, despite earlier speculation that such a levy was being considered.
PROPERTY TAXES
Speculation over the summer suggested that Council Tax and Stamp Duty Land Tax could be replaced by an Annual Tax based on property values, potentially at 0.48% of the value of a property, with a 0.96% surcharge for second homes. Fifteen Labour MPs published a paper backing the proposal, which is being promoted by the Fairer Share campaign.
Back in July, Angela Rayner, newly reappointed as Housing Secretary, signalled that the issue could be looked at ahead of the Budget, noting that Council Tax still relies on property values dating from the early 1990s.
However, in an interview with the BBC, the Prime Minister said that he was not considering the proposal and that it would not be included in the Budget.
There has also been speculation that the threshold for the high-value Council Tax surcharge, announced in the 2025 Budget, could be reduced, perhaps from £2 million to £1.5 million. This could potentially double the amount raised by the levy to around £800 million a year.
BUSINESS TAXES
The current indications appear to be against increases to the main business taxes, such as Corporation Tax, although sector-specific levies remain a possibility.
The Trades Union Congress has called for an increase in the Corporation Tax surcharge applying to banks, which currently stands at 3% above the main Corporation Tax rate. The Telegraph has reported that the Chancellor is considering the idea, with Treasury officials looking at ways to plug a £4.7 billion hole in the public finances while seeking to avoid Direct Tax increases on individuals.
Reform UK and the Green Party have advocated such a proposal. However, Jamie Dimon, chief executive of JPMorgan Chase, has warned the Government that higher bank taxes could make the UK less competitive and encourage jobs to move elsewhere.
Reports have also suggested that the Chancellor could consider a further windfall tax on oil and gas companies, with Treasury officials reportedly describing this as “low-hanging fruit” for increasing Government receipts.
Energy sector representatives have warned that an increase in North Sea taxation could affect energy security. Russell Borthwick, chief executive of the Aberdeen and Grampian Chamber of Commerce, has argued that further changes to the fiscal regime would damage investor confidence.
INHERITANCE TAX AND SOCIAL CARE
Reports have linked the debate over social care funding to possible reform of Inheritance Tax. One proposal associated with the Prime Minister is the replacement of Inheritance Tax with a 10% “national care levy” on assets at death.
The idea has attracted interest from the Liberal Democrats, while the Conservatives and Reform UK have taken different positions on how social care should be funded.
While no further details have been published, the Prime Minister has indicated that there would be “difficult decisions” on funding social care and that he is determined to “get it right”.
With the Government’s review of adult social care expected to report in summer 2027, it seems unlikely that there will be any related tax changes in this year’s Budget.
SIX WEEKS TO GO…
There are still six weeks to go until we know the answers. A lot can change between now and 28 October.
For now, our advice remains unchanged: do not make financial or tax planning decisions based on speculation about what may or may not be announced. Focus on planning that you would undertake regardless of the outcome of the Budget.
