Home Finance Drivers face £43 tax rise as Rachel Reeves plans massive Budget raid

Drivers face £43 tax rise as Rachel Reeves plans massive Budget raid


Rachel Reeves is expected to add increases in fuel duty and capital gains tax to a package of rises designed to combat a claimed £40 billion shortfall in government spending.

There is mounting speculation that the bulk of the shortfall will be made up through tax rises rather than cuts in public services in what is predicted to be a significant Budget tax raid.

Other changes predicted include requiring employers to pay National Insurance on staff pension contributions, plus increases in inheritance tax and changes to tax relief around pensions.

A change to capital gains tax (CGT) rules is predicted to raise sums in the “low billions”, while expectations of a 5p a litre rise in fuel duty would raise around £2 billion a year.

Labour promised not to increases taxes on “working people” in terms of income tax, National Insurance and VAT in the budget, which has left the Chancellor casting around for other options. Separately, Rachel Reeves also pledged there would be no return to austerity.

Economists say this has left the new government with very few options in terms of finding the money required to invest in public services, such as the NHS, schools and social care.

Currently gains made on assets such as shares and second homes are taxed at a lower level than income from work. Typically, the figure is 20 percent compared to 40 percent and 45 percent for those on high earnings.

It now appears likely that the CGT on profits gained from the sale of shares is likely to rise by “several percentage points”, according to the Times. However, it seems there would be no extra CGT on second home property sales, which would protect buy-to-let landlords.

There are suggestions that there will be some other changes to CGT rules that will see increases in the amount to be paid on gains in assets when someone dies.

CGT is levied on profits of more than £3,000 from the sale of assets but self-invested personal pensions (SIPPs) and ISAs are exempt. There are an estimated 12.5 million private shareholders, but the tax is only paid by 350,000 people a year.

However, increasing the rate of capital gains tax on the sale of shares could still generate billions for the Treasury as the bulk of revenues — just over half — come from the sale of unlisted shares in private companies, which enjoy an average gain of just over £120,000. By comparison, the average capital gain on the sale of listed shares is £18,000.

Last month the boss of Next sold £29 million of his shares in the homewares giant, leading to speculation among City analysts that the sell-offs were in anticipation of changes to capital gains tax.

Stuart Adam, a senior economist at the Institute for Fiscal Studies, said: “Simply increasing headline rates of CGT would raise limited revenue and cause economic damage. If the chancellor wants to raise significant sums, it is essential that rate increases are accompanied by changes to the way the tax works — removing some ill-conceived reliefs while giving more generous deductions for investment costs and losses.”

There is mounting speculation that the Chancellor is planning the first rise in fuel duty since 2011 with the figure rising by 5p a litre. It is estimated this would cost drivers an extra £43 a year to run a petrol car and £39 more for a diesel.

Recent falls in pump prices, bringing them down to a three-year low, have given the government some room to increase duty without causing too much pain for drivers. However, any increase in the cost of fuel will hit all households and the wider economy because of the increases in transport costs.

Four years ago, Ms Reeves, then a backbencher, criticised the then chancellor Mr Sunak for freezing fuel duty. In March 2020 she wrote on Twitter: “This should have been the greenest Budget ever, but the Tories have chosen to spend £27 billion on new roads and £2.7 billion on yet another fuel duty freeze, compared to just £6 billion on local public transport. They don’t recognise the challenge of the climate emergency.”

Fuel duty used to rise above inflation every year until 2011, when it was frozen by David Cameron’s government, and it has remained frozen ever since.

The levy was cut by 5p a litre by Mr Sunak when he was chancellor in 2022 as motorists were struggling with increased costs in the wake of the war in Ukraine. Subsequent budgets confirmed the freeze and the levy is now set at 52.9p per litre.

Had it increased every year in line with inflation, it would now raise an additional £19 billion a year for the Treasury.

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