Budget 2025: Which tax rises could hit rural areas?
With fiscal headroom shrinking and a £20bn productivity downgrade to the economy, speculation mounts on what will be on Rachel Reeves’ tax increase list ahead of the budget
Over the last few weeks there has been increasing speculation that Chancellor of the Exchequer, Rachel Reeves MP, will increase taxes in order to fill the fiscal “black hole”.
The question everyone is asking however is: which taxes will be targeted?
‘Very little fiscal headroom’
Let’s start by looking at the context. Even before the Office for Budget Responsibility (OBR) presented its final report on the UK economy to No 11 Downing Street earlier this year, it was apparent that the chancellor had very little fiscal headroom.
Despite last year’s budget changes to inheritance tax and employer National Insurance, as well as the Spending Review in June this year, global events and an ongoing cost of living crisis appear to have conspired to create another fiscal black hole. This was compounded by the OBR when it downgraded UK productivity by £20bn.
With so little wiggle room, news from HM Treasury appeared to be setting the country up to be ready for further tax changes. A speech from the chancellor this week has failed to quell these rumours. She has made it very clear that she will make “the necessary choices” to stabilise the economy and not necessarily make decisions that are politically expedient or popular.
What tax rises could be announced?
The first to consider is an increase in either the basic or higher rate of income tax by 1%. Although this could bring in £8bn to £9bn in tax receipts, it would be politically toxic given that not raising income tax was a manifesto commitment.
We know that the freeze on the personal tax allowance of £12,570 per year will be extended, bringing in an estimated £8bn. It has also been mooted that the chancellor could impose national insurance on rental profits which could bring in £2bn. Importantly, if this was extended to all rental profits, and not just residential lettings, it could hit the rural sector hard. From our analysis, it could potentially mean the rural sector contributing more than 20% of the new tax take.
Other organisations have been calling for the VAT registration threshold, currently £90,000, be reduced to £30,000. Such a move could see small businesses and sole traders having to register for VAT if their respective turnover was over £30,000. This would lead to an increased administrative burden as well as an increase in prices to consumers. It would also disincentivise investment and limit growth.
And it goes on. Among a number of other potential tax increases are: a wealth tax, a mansion tax, changes to Council Tax banding that would impact higher value property, and higher capital gains tax.
Budget day around the corner
In the run up to budget day on 26 November, we will be hearing even more rumour and conjecture on what the chancellor will do.
At the CLA we will be monitoring developments and assessing potential impacts to make sure that members are kept fully up to speed.
On budget day we will provide analysis and context of what the changes mean for those who live and work in rural areas so stay tuned for our reaction and breakdown.
