Rachel Reeves is reportedly considering raising income tax in November’s budget, as well as a new mansion tax on properties worth over £2m.
Economists have suggested the chancellor will need to find between £20bn and £50bn to meet her goal of balancing day-to-day spending with tax receipts in 2029/30, and at least maintaining a buffer of around £10bn against that target.
Labour promised in its 2024 manifesto not to raise income tax, VAT, or employee National Insurance contributions – limiting Reeve’s options. Self-imposed fiscal rules on borrowing and spending also mean her buffer can be wiped out by relatively minor variations in budget forecasts.
However, according to the Guardian, the chancellor is in “active discussions” around potentially breaking one of Labour’s main manifesto pledges in order to clear an estimated £30bn shortfall.
One source said Reeves is considering adding 1p to the basic rate of income tax, while another suggested she is more likely to raise higher or additional rates in line with her pledge to make sure those with the “broadest shoulders” face the highest burden.
Reports previously suggested that Reeves would target the wealthy to help boost the government’s finances, with reports in The Times suggesting she would target lawyers, GPs and accountants. She is also reported to be considering a new mansion tax and a business rates surtax.
Rumours have swirled around potential tax rises in the run-up to the budget, but ministers have remained tight-lipped when asked about them – here’s what we know so far.
Will VAT be raised?
Labour made a commitment in its manifesto not to raise income tax, national insurance or VAT – the sales tax consumers pay on most purchases – but recent messaging has been mixed.
Reeves has not explicitly ruled out raising VAT, saying she didn’t want to go through the manifesto “line by line” before the budget.
Chief secretary to the prime minister, Darren Jones, appeared to rule out changes to VAT, saying the pledge “still stands” and “you don’t need to worry” about the change in language used by Reeves when discussing it.
Conservative leader Kemi Badenoch has previously argued: “Claiming that ‘the manifesto stands’ is not the same as saying ‘no rise in VAT’.”
Chancellor Rachel Reeves pointed to Labour’s record of not increasing VAT at the last budget, without explicitly ruling out a rise. (Alamy)
Will income tax thresholds be frozen for longer?
Ministers have been less direct about extending the freeze on income tax thresholds, which is due to expire in 2028/29.
The freeze was implemented by the previous Conservative government and means the threshold at which a person moves up the income tax rates is kept at the same level, rather than increasing with inflation each year.
At the time, the Tories were accused of using it as a stealth tax hike on working people and it generated billions of new revenue for the government.
When asked about it on 29 September, Reeves refused to say whether she would extend the freeze beyond 2028.
Prime minister Keir Starmer also refused to rule out extending the freeze when asked about it at Prime Minister’s Questions in July.
What about a wealth tax?
On 16 October, Reeves ruled out a new wealth tax but hinted there would be more taxes on the rich.
There is an appetite for a wealth tax among Labour backbenchers, and the idea has the support of Greater Manchester mayor Andy Burnham.
There has been no hint about what specific taxes Reeves could raise on the rich, but Labour have ruled out increasing income taxes, and the chancellor did note: “Wealth’s not about your annual salary.”
Will inheritance tax be raised?
The government is also considering changing inheritance tax rules, with several newspapers reporting rumoured changes.
The government has already proposed bringing most unused pension funds and death benefits within the value of a person’s estate for inheritance tax purposes from 6 April 2027.
But the Guardian reported in August that the Treasury was considering tightening rules on the gifting of money and assets.
The paper said the government was considering introducing a lifetime cap on the amount of money a person could give their family member, rather than only taxing assets given seven years prior to death.
It has also been rumoured recently that the government is considering rolling back some of its planned changes to inheritance taxes that apply to farms, which sparked protests in London last October.
The Sunday Times reported on 11 October that officials were discussing raising the inheritance tax exemption limit from the originally planned £1m to £5m.
Will businesses be taxed more?
Supermarket bosses have urged Reeves to exempt shops from a new business rates surtax, expected to be confirmed in next month’s budget, which would come into effect from April 2026.
The letter, organised by the British Retail Consortium (BRC), warns that limiting the tax burden on grocers would help limit food inflation and prevent shoppers from shouldering extra costs.
It has been signed by UK executives and directors at Tesco, Sainsbury’s, Aldi, Asda, Iceland, Lidl, Marks & Spencer, Morrisons and Waitrose.
The BRC said it is concerned large shops could see their business rates rise if they are included in a surtax for properties with a rateable value over £500,000.
This is expected to cover discounts for smaller high-street firms, which will be subject to reduced business rates under the government’s plans.
Supermarket bosses say their “ability to absorb additional costs is diminishing”, adding that “it will be households who inevitably feel the impact”.
BRC chief executive Helen Dickinson said: “Supermarkets are doing everything possible to keep food prices affordable, but it’s an uphill battle, with over £7bn in additional costs in 2025 alone.
“From higher national insurance contributions to new packaging taxes, the financial strain on the industry is immense.”
Could there be a new national property tax?
Sources told The Guardian in August that a potential national property tax would replace stamp duty on owner-occupied homes, although nothing has been confirmed yet.
If ministers do go ahead with the move, the tax would be paid by owner-occupiers on properties worth more than £500,000 when they sell their home, it is understood.
How much they pay would be determined by the value of their home, with a rate set by central government. The tax would not replace stamp duty on second homes.
While about 60% of homes are affected by stamp duty, only a fifth of property sales would be impacted by the new tax based on the average house price, which, according to Nationwide, was £272,664 in July.
The new tax, which could replace stamp duty, would apply to homes worth more than £500,000. (Getty Images)
The Guardian reported the government hoped the new tax would raise a similar amount of money as stamp duty in the long run.
The Conservatives have pledged to scrap stamp duty if they win the next election, with Badenoch saying she wanted Labour to “steal” the policy.
The Mail on Sunday has also reported that Reeves is considering a new mansion tax, which would hit owners of properties with an annual charge of 1% of the amount by which its value exceeds £2m, meaning a £10,000-a-year levy for homes worth £3m.
Which other taxes could rise?
Reeves has faced pressure to raise gambling taxes from Labour’s backbenches in a campaign spearheaded by former prime minister Gordon Brown.
They argued for increasing levies on online gambling from 21% to 50% and noted that online gambling remains highly profitable, with the companies often basing themselves abroad.
Rachel Reeves is facing growing calls to increase gambling taxes. (AFP via Getty Images)
When asked about the campaign and whether she would consider the tax, Reeves told ITV News on 22 September: “I didn’t need MPs or former chancellors to tell me to launch an inquiry into gambling taxation. I did that as chancellor, and I’ll set out the plans on the taxation of gambling – and indeed of other areas – in my budget on November 26.”
It has also been reported by the Guardian that former deputy prime minister Angela Rayner urged Reeves to increase taxes on banks in a leaked memo published in May.
Amid speculation that Reeves could increase bank levies, the sector has fought back, with Sky News reporting banking lobby group UK Finance is set to publish a report arguing any increase would damage competitiveness.
Sky News also reported that the head of banking giant Goldman Sachs warned her personally against such a move in a private meeting at the start of October.
