Labour Budget: Four Ways to Raise Tax Without Income Tax
The UK government is considering bank, gambling and online marketplace tax rises before the Budget.
At a glance
- Labour may raise taxes on banks, gambling machines or online sellers in the upcoming Budget.
- The government has pledged not to raise income tax, VAT or National Insurance.
- The Treasury estimates a £12bn VAT gap from online sellers it says it cannot currently tax.
The chancellor, John Healey, is preparing for the UK Budget due this week, according to reports.
He has a cash buffer, known as headroom, that the government uses to meet its fiscal rules and reduce borrowing. Economists suggest the buffer may have fallen from about £24bn to as low as £11bn over six months, partly because of higher interest rates on government borrowing.
Mr Healey may need to raise more money to restore the buffer, which would suggest the government’s plan to reduce borrowing by the end of this Parliament is still on track. He is also under pressure to find money for cost-of-living support and defence spending. Labour’s 2024 election manifesto promised not to raise income tax, VAT or National Insurance.
BBC Verify examined possible ways the chancellor could raise revenue. UK banks have reported higher profits in recent years after being able to charge more when borrowers paid higher interest rates. There is said to be widespread belief among bank bosses that the chancellor is preparing to raise taxes on banks in the Budget.
Tax Policy Associates estimates that increasing the surcharge banks pay on corporation tax from 3% to 5.5% could raise an additional £1bn to £2bn a year.
Former Prime Minister Gordon Brown has called on Mr Healey to increase tax on electronic gaming machines, such as those in betting shops and adult gaming centres. The Social Market Foundation estimates that doubling the tax from 20% to 40% could raise between £275m and £460m.
Reports also suggest that large online marketplaces, including Amazon, eBay and Temu, could be made responsible for collecting tax owed by retailers using their platforms. The Treasury estimates it is missing out on around £12bn a year in VAT revenues that should be paid by companies, which it calls the VAT tax gap. The move could raise around £1bn in extra VAT a year, though Amazon estimated £700m.
The three tax measures together could raise a maximum of about £3.5bn a year, which would be small compared with the sums the chancellor may need.
There is also political pressure over welfare spending. Andy Burnham said in summer he wanted a fair and lasting reduction to the UK welfare bill, while the government is under pressure from opposition parties to find savings from working-age benefits.
Source: BBC Business.
Questions and answers
- What could Labour do to raise money in the Budget without raising income tax?
- The government is considering options such as higher taxes on banks, gambling machines and online marketplaces. It has ruled out capital gains rises and a mansion tax.
- How much could a bank tax raise in the Budget?
- Tax Policy Associates estimates that raising the bank corporation tax surcharge from 3% to 5.5% could raise an additional £1bn to £2bn a year.
- Why is there pressure to raise taxes before the Budget?
- The government's fiscal headroom may have fallen to as low as £11bn, and it faces pressure to fund cost-of-living help and defence spending. Labour's manifesto pledged not to raise income tax, VAT or National Insurance.
