October Budget 2024 predictions: what could Rachel Reeves announce?

Rachel Reeves, the chancellor, has promised that public spending will grow in real terms and there will be no return to austerity. This will almost certainly funded by tax rises and some additional borrowing at the budget on October 30.
However, Labour claims that the Conservatives’ fiscal mismanagement bequeathed them a £22 billion deficit that must be closed via “difficult decisions” has hit business and consumer confidence, despite the biggest annual growth upgrade in the G7 this year from the Organisation for Economic Cooperation and Development (OECD).
Given that she and Sir Keir Starmer, the prime minister, have ruled out raising the main rates of income tax, national insurance contributions and VAT, it leaves areas such as Isas, pensions, inheritance tax and the wealthy to tap for more revenue. Here are some of the chancellor’s options?
• What could the autumn budget mean for you?
Income tax
This year, the Treasury will raise more than £1 trillion in taxes, according to the Office for Budget Responsibility. Some 30 per cent, or £303 billion, of that will come from income tax alone — it is by far the biggest revenue-raiser for the government.
The chancellor could increase this return further without lifting the main rates of income tax by lowering the thresholds at which those rates — 20, 40 and 45 per cent — kick in.
According to the Institute for Fiscal Studies (IFS), a think tank: “Reducing the personal allowance or the basic-rate limit … by 10 per cent, for example, would yield £10 billion and £6 billion a year in additional revenue, respectively.”
Income tax thresholds have been frozen for several years already, a policy first launched by Rishi Sunak in March 2021, dragging people up the tax system when they receive a pay rise.
Pensions
Labour is expected to abandon plans to mount a tax raid on pension savings amid warnings that it would unfairly penalise up to a million teachers, nurses and other public sector workers. Senior Treasury officials are understood to have told Rachel Reeves that reducing the current 40 per cent level of tax relief on higher earners would disproportionately hit those of relatively modest incomes who work for the state.
At present pension contributions, up to a certain limit (typically 100 per cent of annual earnings), receive income tax relief. Pensioners then pay tax when they withdraw from their retirement pot. The system is intended to ensure that pensions are taxed once — when they are actually used.
However, critics say that some pensioners receive an income tax relief of 40 per cent or 45 per cent and only pay the basic 20 per cent rate of income tax.
The IFS estimates that if the chancellor limited the up-front relief on pension contributions to the basic rate of income tax, it would raise about £15 billion a year. Alternatively, making employers liable to pay national insurance on employees’ pension contributions could yield £12 billion in five years, according to the Resolution Foundation.
Capital gains
The chancellor could either increase the main rate of capital gains tax, which is typically either 10 per cent or 20 per cent, or expand the base of assets liable for the levy. Doing so would more closely align CGT with income taxes but could blunt investment.
Any such increase in the main rates of CGT or the type of assets exposed to it could be offset with inflation indexation. Right now, purely inflationary increases are subject to tax without any real increase in the value of the asset.
Inheritance tax
At £8 billion a year, inheritance tax is one of the UK’s smaller taxes. Only about 4 per cent of deaths trigger the tax. However, it draws much scorn as it is regarded as pure double taxation.
There are several options available to Reeves to make the IHT system more effective.
The IFS said: “A good start would be ending, or at least capping, the unjustified exemptions for pension wealth, business assets and agricultural land — a change that would raise around £2 billion a year, assuming no behavioural response.”
Reeves could also abolish or cap the business and agricultural IHT relief. Shares in companies listed on the Alternative Investment Market can also be passed on IHT-free if held for more than two years before an individual’s death. Abolishing that relief could yield £1.1 billion.
Individual Savings Accounts (ISAs)
Reeves has been warned that tax record deposits in Isa accounts by curbing tax reliefs risks suppressing much-needed investment. The chancellor could see the swelling of Isa deposits to record levels as an opportunity to raise tax revenue by lowering the annual £20,000 tax-free allowance.
Analysis of data published by the Bank of England showed that savers hold £375 billion in individual savings accounts, the highest level since the accounts were launched in 1999. In the past year alone Isa deposits have climbed 17 per cent, or £54 billion, from £321 billion, with monthly inflows reaching a record of £11.7 billion in April partly due to the tax year deadline falling in the month.
Ashley Webb, UK economist at Capital Economics, a consultancy, said: “While reducing the tax-free allowance on Isas would raise revenue for the Treasury, it won’t help lift the UK’s low level of investment.”
Tomasz Wieladek, chief European economist at T Rowe Price, the investment firm, said: “The UK doesn’t save enough as a country. That is one of the reasons behind weak investment. Given their historical low propensity to save, British savers need all the incentives to save they can get.”
Fuel duty
It became a ritual of Conservative chancellors to postpone planned increases to fuel duty. In fact, since 2011, had fuel duty increased every year in line with the retail price index — an old measure of inflation — fuel duty would now raise an additional £19 billion a year for the Treasury.
There is a strong chance that Reeves does not follow this tradition, generating around £6 billion for the government. However, this cash injection is already baked into the OBR’s latest forecasts.
Doing so could steer motorists away from petrol cars and towards more environmentally friendly vehicles if dove-tailed with boosting incentives to drive electric cars.
Property taxes
Consensus is hard to come by in economics, but one has emerged around the inefficiency of stamp duty. The Organisation for Economic Co-operation and Development and IFS have each called for it to be abolished at a cost of about £13 billion.
Any property sold for £250,000 or less is exempt. The next £675,000 is subjected to a 5 per cent levy, which reaches a peak of 12 per cent for the most expensive homes.
The IFS said that stamp duty “has a claim to be the most economically damaging tax in the UK. It makes both housing and labour markets less efficient, acting as a drag on growth.”
Private equity profits
In July, the Treasury asked private equity firms and affiliated sectors to submit their thoughts on the tax treatment of profits made by private equity executives.
Executives of a private equity fund invest in the vehicle with investors, receiving what is known as “carry” or “carried interest” on profits, which is taxed at 28 per cent, the rate of capital gains tax, rather than the combined income tax and national insurance rate of 47 per cent. It is a key component of the remuneration of executives in the industry.
Subjecting carried interest to income tax rates could, in theory, make private equity executives liable for an additional £2 billion of tax, although this does not account for changes in individuals’ behaviour, which would potentially cut the tax take.
Rabbits
Banks have benefited from not passing on the Bank of England’s interest rate rises in full to savers, receiving what is known as a wider “net interest margin”. Reeves could introduce a one-off tax to claw back some of this windfall.
Despite speculation and pressure from trade unions to introduce one, Reeves has ruled out a wealth tax.
She may, however, be tempted to create an entirely new tax moulded on an existing levy. Boris Johnson and Rishi Sunak did this in September 2021 when they created the health and social care levy, effectively an extra 1.25 percentage points on national insurance contributions. It was scrapped by Liz Truss and Kwasi Kwarteng in 2022.
Fiscal rules
Labour sources have also hinted that Reeves, after beating back speculation for months, is considering tweaking the fiscal rules to raise money for investment. Minimising the impact of the Bank of England’s bond sales on the public finances could generate around £15 billion.
Reeves has committed to balancing the current budget and reducing the debt-to-GDP ratio between the fourth and fifth years of the OBR forecast.
The chancellor is also considering switching to one of two alternative debt measures – public sector net worth or public sector net financial liabilities – that account for a broader net of the government’s assets.
Sanjay Raja, senior economist at Deutsche Bank, predicted that incorporating one of these definitions would act as a “sense check” on investment spending “whereby Treasury officials would be required to outline the merits of investment/borrowing to boost the supply side of the economy alongside potential growth”.
Incorporating PWNW or PSNFL would increase the fiscal headroom to around £60 billion.