Which taxes could rise in the budget to fill £40bn black hole? What we know
Chancellor Rachel Reeves is reportedly exploring options to raise additional revenue from inheritance tax ahead of the autumn budget.
The move comes following reports earlier this week that the government is planning tax rises ahead of the autumn budget.
The Guardian reported the government will begin "preparing the ground" from next month to forewarn the country about what is to come.
Government U-turns over winter fuel payments and welfare reform have left Reeves with a multibillion-pound spending gap to fill, amid pushes for a wealth tax by some Labour MPs — and millionaires themselves.
Here's what we know so far.
Why is the government considering increasing inheritance tax?
The paper reported that there will be no increases to income tax, national insurance or VAT - a key Labour manifesto pledge ahead of last year's general election.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said that choosing to increase inheritance tax meets "the government's criteria of raising tax without taxing people more during their working lives".
Added to this, by raising revenue through inheritance tax, there are a lot of ways to garner more income.
'The system is so fiendishly complex that there are an enormous number of rules, and therefore tweaks, that the government could consider," she said.
One of the paths to explore would be a maximum limit on the amount of money or assets that can be given away as Potentially Exempt Transfers (PETs) without incurring inheritance tax (IHT) if the donor survives for seven years after making the gift.
By doing so, this would 'bring in taxes, from stamp duty to VAT".
'From a Treasury perspective, capping PETs would need to be balanced against the fact that, at the moment, these gifts allow for money to pass through the generations. It means younger family members can put it to work for them, buying homes and spending," Coles added.
Which taxes could rise?
While increasing inheritance tax is being explored, there are still other options on the table.
A rise in gambling taxes looks to be on the cards, with Reeves leaving the door open for this on 7 August after Gordon Brown had urged the chancellor to raise levies to cover the cost of lifting the two-child benefit cap.
The former prime minister is calling for the government to increase duties for online casinos and slot machines, with Reeves saying of this: "We've already launched a review into gambling taxes. We're taking evidence on that at the moment."
Reforms to gambling levies could generate the £3.2bn needed to scrap the two-child limit and benefit cap, the Institute for Public Policy Research has said.
Meanwhile, the National Institute of Economic and Social Research (Niesr), a major economic think tank, has called for reform of the council tax system, such as overhauling council tax bands and possibly replacing it with a land value tax. The government has not commented on this.
Leading health experts have also called for a change to the alcohol tax, linking duties to inflation and ending 'cider exceptionalism", a 2023 measure which resulted in cider being taxed at a lower band compared to other products of the same strength.
Which taxes are not expected to rise?
The government remains committed to its pledge not to increase income tax, national insurance or VAT, though recent messaging has been mixed.
On 6 August, Starmer declined to explicitly say whether the government was still committed to not raising VAT, income tax, as well as corporation tax in the budget.
Downing Street later sought to clarify the government remains committed to its manifesto pledges, which included a promise not to raise taxes on 'working people', including income tax and VAT.
There have been mounting rumours of a wealth tax, but as it stands, the government is ruling this out. Culture secretary Lisa Nandy, Scottish secretary Ian Murray and business secretary Jonathan Reynolds have rejected this in recent weeks, with all of them suggesting it wouldn't work.
Why do taxes need to rise?
Reeves has set herself two fiscal rules: the 'stability rule', which ensures day-to-day spending is matched by tax revenues so the government only borrows to invest; and the 'investment rule', which requires the government to reduce net financial debt as a share of the economy.
Niesr said weaker-than-expected recent economic activity, U-turns on welfare cuts and forecast-beating borrowing mean Reeves is on track to miss one of her fiscal rules by £41.2bn in 2029-30.
It cautioned she faces an 'impossible trilemma' of trying to meet her fiscal rules while fulfilling spending commitments and upholding the manifesto pledge not to raise taxes.
And it said she will likely need to break the promise not to raise taxes for "working people" and resort to 'moderate but sustained' hikes - or cut spending - to address the shortfall.
Read more
Rachel Reeves is under pressure to balance the books. This chart shows the scale of UK debt (Yahoo Finance UK)
Rachel Reeves said this flagship policy would raise money - it may end up doing the opposite (Sky News)
Reeves 'vastly underestimated' scale of private school parents' VAT rebellion (The Telegraph)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
a minute ago
- Yahoo
Why are universal credit claims at a record high?
As the government reports a record rise in universal credit claimants, we look at the reality behind the figures. Warnings of a record number of universal credit claimants have been widely reported this week. The government's own data indicates that one million more people are claiming universal credit compared to this time last year — adding to its claims that the UK's benefits bill is "unsustainable". In reality, what is behind the increase is significantly more interesting and complex. Let's unpack how the government arrived at this figure — and what the experts say. People are being moved from legacy benefits onto universal credit When universal credit was introduced back in 2013, the government's aim was to simplify the benefits system and transfer every benefit claimant to universal credit. In reality, the process has been a lot more complicated than the government had hoped. The Department for Work and Pensions (DWP) is still transferring some households from older benefits — dubbed legacy benefits — into the universal credit system. According to the government's own figures, between February 2024 and February 2025, a total of approximately 1,747,985 individuals in 1,259,480 households claiming legacy benefits were sent migration notices, notifying them that they would be transferred to universal credit. Of those, around 1.4 million people have moved onto universal credit 'The latest rise in the number of people receiving universal credit is due in part to people being moved across from legacy benefits," Beatrice Orchard, Senior Policy and Public Affairs Manager at the UK's largest foodbank charity, Trussell, told Yahoo News. "When universal credit was set up it was designed to streamline support into one means-tested payment and people are moving from other benefits onto the newer system." Jack Kellam, the head of communications at the Autonomy Institute, echoes this. "From July 2022 around 1.6 million people have claimed UC following a migration notice," he told Yahoo News. "While this clearly doesn't explain all of the current rise, it's a significant amount of people, and we need to keep this in mind when we see figures about growth in universal credit claimants." The TUC's general secretary, Paul Nowak, also believes this is a key factor behind the rise. He told Yahoo News: "The rise in claimants is likely to driven by more people now getting universal credit who would previously have received legacy benefits like job seekers allowance and incapacity benefit." The pension age has risen When the state pension age increases, those who would be claiming their pension earlier are entitled to other state support for longer. Additionally, people who previously would have started receiving the state pension and pension credit must now wait longer before they become eligible for those forms of support As the state pension age in the UK last increased from 65 to 66 for both men and women by October 2020, that knock-on effect will be felt in the system now. The next planned increase — raising the state pension age from 66 to 67 — is scheduled between 2026 and 2028, which is also likely to result in an uptick of claims. "Rising pension age also means that more people are eligible for working-age support for longer," Orchard explained. The cost of living is rising It is clear that so many of us are feeling the pinch due to the rising cost of living — and no-one is feeling that more than lower-income families. If we compare the cost of living to the same period where a record rise in universal credit claims has been measured, the cost of living in the UK has risen by approximately 3.6% in the 12 months from July 2024 to July 2025, according to the Consumer Prices Index (CPI). This marks a continued increase in prices, driven mainly by higher costs in food, fuel, and other essential goods and services. The inflation rate remains above the Bank of England's 2% target. Food inflation reached 4.5% in June 2025, and energy and housing costs have also contributed significantly to the rise. It is worth noting that the average wage in the UK increased by approximately 4.6% year-on-year in the three months to June 2025. However, when adjusted for inflation, real earnings increased by only about 0.5%, making the weakest real wage growth since June 2023 — another challenging financial year in recent memory. Social security as a share of GDP is steady If we were to look at this figure in isolation, the experts are keen to point out that social security spending as a share of the UK's GDP is steady. According to the latest available figures displayed in this chart, the largest social security spend is on pensioners, indicating the government's spend on winter fuel payment, state pension and pension credit is more significant. Spending specifically on benefits for working-age adults (excluding health and housing-related support) declined from 2.8% of GDP in 2007-08 to about 1.9% in 2024-25, according to the Resolution Foundation. While total social security spending has moderately increased as a share of GDP, the composition has shifted notably, with reduced spending on general working-age benefits but increased spending on disability-related benefits. 'Spending on working-age social security as a share of GDP has been stable for the past decade, and is forecast to remain so in the years ahead," Orchard added. People in the UK are getting sicker A rise in disability benefits also gets at another factor: people in the UK are getting sicker. "Poverty is one of the leading causes of ill health," Kellam said. "Many have been trapped just above or below the poverty line for many years – bouncing in and out of work, just about keeping their heads above water. "We should not be surprised that an economy beset by low pay and chronic insecurity – alongside the existing issues the UK has in health and social care – has begun to generate a situation in which more and more individuals are too unwell to work, or need to care for others who are too unwell to work." Kellam explained this issue in detail, arguing that the government has not been proactive enough in tackling some of the biggest causes of ill health in the UK, pre and post the Covid-19 pandemic. "Rather than invest in social housing, successive governments have instead opted to use welfare to subsidise rising private rents," he told Yahoo News. "Rather than develop a robust social care system for an increasingly ageing population, governments have chosen to ground the system subsidising unpaid carers, who are then pushed out of employment and into universal credit. "Rather than tackle the explosion of novel forms of exploitative employment relations in recent decades – from bogus self-employment, to zero-hours contracts and algorithmic management – governments have instead topped up the low wages offered by employers. "At root, we have an economy in which, for many, employers do not pay enough, with anywhere near enough security, with very high housing and living costs," he added. Many people claiming universal credit are in work One other less explored factor accounting is the modest but steady increase in people claiming universal credit are in work. In July 2025, there were 2.2 million working people on universal credit, up from 2.1 million a year before. In reality, Trussell thinks that figure could be closer to 2.7 million. 'Work is not providing the reliable route out of hardship we might expect with 2.7 million people in work needing to top up their income with universal credit," Orchard told Yahoo News. "For many people, disabilities, health conditions and care responsibilities are major barriers to work." *Yahoo News has reached out to the DWP for comment.
Yahoo
20 minutes ago
- Yahoo
Rachel Reeves to raise ‘stealth and sin' taxes to cover black hole
Rachel Reeves is set to hit British consumers with extra 'sin taxes', leading forecasters have predicted, which are widely seen as regressive taxes that could hit people on lower income. The Chancellor faces having to raise £20bn in taxes at this year's Autumn Budget to restore her 'already paltry' margin of £9.9bn in headroom, according to Pantheon Macroenomics. Its UK economists Robert Wood and Elliott Jordan-Doak said the costs incurred from U-turns on welfare savings and lower tax receipts than expected could erode her fiscal buffer. They said Reeves could look to sin taxes, which could include adding levies on gambling and junk food, to rebuild her buffer while a 'stealth tax' by extending a freeze on income tax thresholds could help her fill an estimated £13bn fiscal hole. Axing the two child benefit cap, which would cost around £3.2bn, and a move to pull a rabbit out of the hat at the Budget could lead to higher costs for the government. With the backing of the progressive think tank Institute for Public Policy Research, Former Prime Minister and Chancellor Gordon Brown argued increasing levies on online casinos and slots machines to 50 per cent could get the Treasury enough to cover the costs of scrapping the cap. Regressive taxes Other 'sin' taxes beyond gambling may include higher duties on tobacco, alcohol or sugar, as well as junk food. The government has already moved to reduce sales of junk food by adding to red tape on supermarkets on healthy food standards. Charities and health groups including Diabetes UK and the World Cancer Research Fund have previously called for higher levies on soft drinks and salty food. Some duties rise with inflation but Rachel Reeves could move to raise taxes higher. The government has also opened consultations on proposals to end the exemption from sugar taxes on milk-based drinks, suggesting that milkshakes and lattes could be subject to higher taxes. The Institute of Economic Affairs (IEA), a free market think tank, has described sin taxes as regressive as they take a 'greater share of income from the poor than from the rich in all plausible scenarios'. Christopher Snowdon, head of lifestyle economics at the IEA, said: 'The sugar tax has been such a dramatic failure that it should be repealed, not expanded. 'It has been costing consumers £300 million a year while childhood obesity rates have continued to rise.' Tobacco companies have meanwhile argued that the existence of a tax gap worth £1.4bn between 2023 and 2024, which shows the difference between the tax paid to HMRC versus the tax that should be paid based on consumption, is evidence of a booming black market for cigarettes and tobacco. The alternative option for Rachel Reeves would be to adjust fiscal rules by bringing forward a rule, which is set to come in 2027, that allows her to have a forecast deficit of 0.5 per cent of GDP in day-to-day government spending, according to Pantheon Macroeconomics. This change could allow her to build £17bn in headroom but it could spook bond traders due to the impact of higher borrowing and her betrayal of 'non-negotiable' rules. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
31 minutes ago
- Yahoo
Andy Burnham speaks out on taxi driver's £170 Manchester Airport fine
Andy Burnham has branded a taxi driver's £170 Manchester Airport fine 'harsh' and 'a little heavy-handed'. Cameras were installed at the Airport to automatically charge motorists earlier this year, removing the need for payment barriers so traffic can flow more smoothly. Drivers have until midnight the following day to pay the £5 drop-off or £6.40 pick-up fee. When it was rolled out in March, Sue West, Manchester Airport's landside operations director, said: 'We're always looking for ways to make our passengers' lives easier. READ MORE: Manchester mum on Cyprus holiday turns on fellow hotel guests READ MORE: Drug dealers targeting Brits in Tenerife arrested on strip where Jay Slater partied To see planning applications; traffic and road diversions and layout changes; and more, visit the Public Notices Portal HERE 'By removing barriers in our drop-off and pick-up zones it will speed up the process and make it feel seamless – and it will stop people from going into more expensive pay brackets while they wait at the barriers.' But calling into the mayor's regular BBC Radio Manchester Neil, a private hire driver, said he registered his taxi and debit card to Manchester Airport's payment system, so drop-off fees he is charged while working are paid automatically. However, Neil told listeners he upgraded his taxi to a new car and forgot to update the registration plate on Manchester Airport's system. He didn't notice his mistake before the payment cut-off, so was issued a £100 fine. But Neil said the first letter 'went astray' and debt collectors have now contacted him demanding £170. Mayor Andy Burnham said the approach was 'a little heavy-handed' and revealed his office has had complaints about the new system. 'It's a system I do not control,' he said. 'It feels harsh in some ways, given they know you as an operator. 'I know there are other complaints about the system. I feel we need to work with the Airport so everyone understands the system. I think some people have been in a position where the change has come in and they know about it.' Manchester Airport was contacted for comment.
