With the public finances showing structural cracks, thanks to an estimated £20 billion to £30 billion hole in next year’s budget, Chancellor Rachel Reeves is facing an unenviable challenge. The Office for Budget Responsibility has flagged rising debt, pension obligations, and hefty costs associated with the climate transition as daunting risks to Britain’s fiscal health. Markets are nervous, gilt yields are creeping up, and voters are bracing for some unwelcome news.
And what is the quick fix? Tax rises. With Labour pledging not to raise headline rates of income tax, VAT, or National Insurance on working families, the palette remains muted, but a few remaining options could still sting.
Stealth tax via fiscal drag
Freezing income tax and National Insurance thresholds in real terms is a favourite trick. Each year, pay rises push more people into higher bands. Extending the freeze beyond 2028 could raise £9 billion to £10 billion annually by 2029 to 2030. But pensioners on modest incomes may also be hit. Freezing the personal allowance means many could unexpectedly cross the £12,570 threshold, triggering a stealth income tax rise.
Pension and ISA reforms
The Chancellor might revive plans to cap the tax-free lump sum or reduce tax reliefs for higher earners. That could plug a gap of up to £15 billion a year. There may also be changes to ISA limits, a shift in how capital gains are taxed, or the introduction of a flat 30% pension relief model. None of these changes is likely to be popular, particularly among older voters.
Wealth taxes, levies and property tweaks
Pressure is growing from within Labour to increase taxes on the wealthy. Some have floated a wealth tax on assets over £6 million or £7 million, potentially generating £10 billion or more each year. While Reeves has described such measures as bold, that boldness might clash with fiscal rules and the need to reassure the markets.
There is also talk of adjusting council tax bands to better reflect property values or introducing a health or defence levy. Freezing the inheritance tax threshold, possibly with tighter reliefs on business or agricultural property, could also return to the agenda.
Business contributions
Although Labour’s manifesto ruled out raising corporation tax, there may still be scope to increase employer National Insurance contributions or apply targeted levies on banks and insurers. These moves raise revenue without directly affecting household take-home pay, but they still have broader economic consequences.
Why it matters—and the tension ahead
All of these potential measures rest on a knife edge between political risk and economic necessity. Each tax change could affect Labour’s public support, business confidence, or voter trust. The Office for Budget Responsibility has highlighted the limited fiscal headroom available, and investors are likely to expect at least £10 billion in new measures to maintain confidence.