“IFS Warns Rachel Reeves Faces Budget Challenges After Labour’s Tax Commitments” 2024-09-20

Labour's tax commitments have put Rachel Reeves in a challenging position as she prepares for her first budget, according to the Institute for (IFS). The thinktank noted that Reeves has effectively "one hand tied behind her back" due to her pledge not to increase four key taxes—income tax, national insurance, VAT, and corporation tax—which together account for 75% of the government's revenue. The IFS warned that this restriction could lead the Chancellor to make decisions that may be detrimental to the economy. With these major tax increases off the table, there is growing speculation that Reeves may look to generate additional revenue through hikes in capital gains tax, inheritance tax, and stamp duty on property transactions.

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Question 1: What are the four main taxes that Labour has ruled out increasing?

Labour has ruled out increases to income tax, national insurance, VAT, and corporation tax.

Question 2: What percentage of all revenues do these four main taxes account for?

These four main taxes account for 75% of all revenues.

Question 3: How has the Institute for Fiscal Studies (IFS) described Rachel Reeves' situation regarding the budget?

The IFS described Rachel Reeves as having “one hand tied behind her back” as she prepares for her first budget.

Question 4: What alternative sources of revenue might Rachel Reeves consider for the budget?

Rachel Reeves might consider increasing revenues from capital gains tax, inheritance tax, and stamp duty on property sales.

Question 5: What potential impact did the IFS suggest could result from Labour's tax red lines?

The IFS suggested that the ruling out of increases to the main taxes could lead the chancellor to make “economically damaging” decisions.