Chancellor John Healey will set out Labour's tax and spending plans when he delivers his first Budget on 28 October. He has refused to rule out tax increases after acknowledging government borrowing costs are at "historic highs". But the government's room for manoeuvre on tax is limited.
Before the 2024 general election, Labour promised not to increase three big revenue earners for the government: income tax, National Insurance and VAT. In his statement, delivered to MPs in the House of Commons, Healey will set out how the government plans to raise or lower taxes. Alongside the Budget, the Treasury will publish details about the measures and their costs.
The independent Office for Budget Responsibility (OBR), which monitors government spending, will also publish an assessment of the health of the UK economy and a forecast of what it thinks will happen in the future. The run-up to the Budget typically sees speculation about what might be in it, which the government is trying to keep to a minimum this year. Healey and Prime Minister Andy Burnham face a difficult balancing act, trying to offer more support to households and meet commitments on defence spending, while also sticking to Labour's manifesto commitments on tax and the government's self-imposed fiscal rules.
The previous chancellor, Rachel Reeves, set out two main rules, which the new leadership has vowed to follow. These are: Not to borrow to fund day-to-day public spending by the end of this parliament To get government debt falling as a share of national income by the end of this parliament In March, the OBR calculated that the first rule would be met with a gap - or headroom - of £23.6bn. However, this headroom is expected to have shrunk.
Analysts at KPMG believe it could have fallen to £12bn, mainly due to the rise in government borrowing costs this year. However, one option that has been floated is Healey potentially accepting a smaller buffer, reducing the need to increase taxes in the Budget. Further details on the "Your First Home" scheme, aimed at helping first-time buyers in England to purchase a property, are expected to be announced in the Budget.
The scheme will allow people to buy a new-build home with a deposit of 2.5%. It would provide them with a loan worth 20% of their property's value to help pay for the purchase. There has been speculation that Capital Gains Tax - which is imposed on the profit people make when they sell an asset that has increased in value - could be changed, through either higher rates or by removing or amending exemptions.
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