Facing a £41.2 billion black hole: Will the Chancellor stick to Labour’s tax pledge?

As the country watches and waits for the Autumn Budget, all eyes are on Chancellor Rachel Reeves and exactly what she announces about taxes in the UK.

Financial experts are spotlighting Labour’s manifesto, casting doubt as to whether the Chancellor can fix the UK’s economic issues without breaking the pledge not to increase taxes on workers.

Reeves needs to find a solution and fast. She is working under slow economic growth, high borrowing, and the Government’s own strict fiscal rules. Her backdrop leaves very little space, and the pressure on her remains high to deliver.

So far, the Chancellor has kept her cards close to her chest when it comes to changes in tax policy.

But the upcoming Autumn Budget will clarify her plans and whether she will go against Labour’s commitment.

What are the views of financial experts?

Many financial experts believe the Chancellor may have no choice but to consider increasing taxes.

The National Institute of Economic and Social Research (NIESR) estimates that the Chancellor is facing a £41.2 billion financial shortfall. Her challenges only grow and could yet see more problems arise.

The size of the financial hole has prompted some experts to suggest that the UK could end up needing support from the International Monetary Fund (IMF) if the situation worsens.

Professor Stephen Millard, deputy director of NIESR, spoke about the Chancellor’s challenges in an interview with The Independent:

“Really, given the gap that we think is, she’s got to go back on her manifesto pledge, raise one of the big three taxes. I think that’s the only way she’s going to be able to generate enough money.

Spending which is permanent needs to be financed by permanent taxation. That’s an issue. If increases in spending are expected to be temporary, they need to be financed through borrowing.

If you were looking to raise £40bn, it would be difficult to do that without touching any of the big taxes.”

The implications are serious. For UK taxpayers and businesses, the sense of uncertainty is growing in a time when they are already trying to manage increasing costs and rising inflation.

What tax rates could the Chancellor introduce?

As speculation grows, so too do the rumours about what kinds of taxes might be introduced or increased.

Given she will want to stick to Labour’s manifesto, potential new taxes are being speculated that she may announce in the Autumn Budget.

These include a wealth tax, which would be a levy on an individual’s total net assets. In addition to this, there are also suggestions of a national property tax.

A national property tax would be a complete overhaul of how property is taxed, scrapping stamp duty and changing the way Council Tax and Capital Gains Tax work. There’s also talk of a National Insurance levy specifically for landlords.

Another potential avenue the Chancellor may explore is the introduction of a mansion tax. This would be a levy on individuals selling their homes, but their tax band would depend on the percentage.

Basic rate taxpayers could be hit with an 18 per cent charge, while higher-rate taxpayers face a 24 per cent charge.

These measures might be seen as alternatives to raising income tax or National Insurance, helping Labour stick to its pledge while still addressing the budget deficit.

But doubts remain about how effective or viable they would be if announced during the Autumn Budget.

How can I prepare?

As we move closer to the Autumn Budget, the noise around tax rates is only going to get louder.

Understanding your financial position and making a plan could make all the difference. With inflation and energy costs already biting, now is the time to take control of your finances.

Whether it’s reviewing your spending, preparing for possible tax changes, or seeking expert advice, early action can help you stay one step ahead.

Financial advisers offer tailored support, helping you budget wisely and manage risks effectively, so you have a plan for every eventuality.

Looking for expert financial advice and support? Speak to our team today.