The Chancellor has brought in her left-wing colleague to help with preparation for the Autumn Budget.
Torsten Bell, who was elected as MP for Swansea West last year, will reportedly help lead economic policy, according to the New Statesman.
It could represent a significant departure from Labour’s manifesto if the ideas Bell has previously proposed are anything to go by.
Bell, who previously worked for Labour figures Alistair Darling and Ed Miliband, ran the Resolution Foundation think tank, which proposed the triple lock be scrapped and inheritance tax be overhauled, among other ideas.
While they were set out before Bell joined parliament and aren’t necessarily government policy ideas, they suggest a possible change in the direction of travel for the Treasury.
A policy paper published by the think tank in 2023 details some of the changes that a left-wing government could make. We look into some of the recommendations and the likelihood of whether they’ll be implemented.
Tax rises: MP Torsten Bell has previously called for widescale reform of the tax system
1. Scrap the triple lock
The pensions industry braced itself for significant change when Bell was announced as pensions minister earlier this year.
Some of the ideas Bell has called for, including the consolidation of pension funds, are now the subject of the Government’s pension review.
But the Resolution Foundation’s bold pension proposal is to scrap the triple lock because it is ‘not a sensible mechanism for pensions uprating’.
Instead, the state pension and working age benefits should be uprated under ‘one consistent policy’.
The think tank proposed a ‘smoothed earnings link’ that would mean the peg to earnings over the medium term would be the same, but would allow short-term deviations to protect the value of pensions over periods of weak or fast wage growth.
Scrapping the triple lock would draw significant criticism, not least because Labour committed to keeping it in place during the election.
However, increasing numbers are starting to question how viable the policy is, as an ageing population pushes the cost of the policy higher.
The Office for Budget Responsibility (OBR) last month said the cost of the triple lock could reach £15.5billion by 2030.
The report also proposed measures to push older workers into retiring later, including raising the age at which private pensions can be enjoyed with full-tax benefits, and gradually reducing the cap on tax-free lump sum withdrawals, based on the age of savers.
Finally, it suggested bringing pensions into the scope of inheritance tax, which the Government will implement from April 2027.
2. Scrap the residence nil rate band
The think tank’s proposals to scrap business and agricultural property reliefs, and bring pension pots into an estate for IHT purposes, have already been planned by the Government.
The report goes one step further by suggesting a removal of the £175,000 residence nil rate band.
Currently, the headline rate of IHT is 40 per cent, charged on anything over the £325,000 ‘nil-rate band’.
People passing on their home to direct descendants, children and grandchildren, are given an extra £175,000 allowance.
The report said that these changes would make it possible to replace the 40 per cent IHT rate, with a banded structure, with rates of 20, 30 and 40 per cent.
In the long-term, it suggests replacing IHT with a ‘lifetime, recipient-based acquisitions tax similar to Ireland’s.’
In Ireland, a capital acquisitions tax is paid on a person’s estate when they die and applies to all property at a 33 per cent rate, but there are various thresholds and exemptions.
3. Capital gains and dividend tax changes
Reeves hiked capital gains tax (CGT) rates last autumn, from 10 to 18 per cent for basic-rate taxpayers, and higher-rate taxpayers now pay 24 per cent, up from 20 per cent.
However, she could raise them further in line with income tax rates, which would see the wealthiest pay 45 per cent on the profits of their assets.
Last week, Bell refused to rule out imposing CGT on homeowners who sell their family homes, ending the current exemption on primary residences.
Critics have suggested that this would do little to encourage wealthy homeowners to downsize, though, and is unlikely to bring in much more tax to the Treasury.
Bell has previously called for CGT reforms so that it targets only real gains, made above inflation.
Instead, he proposed increasing the basic rate of tax on dividends from 8.75 per cent to 20 per cent, while slightly reducing the higher rates. Similarly, any gains made on shares would be taxed in line with these rates, implying a maximum CGT rate of 37 per cent.
Gains on real estate and other assets would skyrocket to between 40 and 53 per cent to be in parity with wages.
CGT hike: One proposal is to tax gains on real estate and charge NI on rental income
4. Overhaul income tax
Reeves has consistently said she will not raise the headline rates of income tax, but with thresholds frozen until at least 2029, more people will pay more tax and face higher marginal rates.
The Resolution Foundation report called for the highest marginal rates to be scrapped, namely the clawing back of child benefit for higher-rate taxpayers, and the level at which the personal allowance is withdrawn.
Instead, it called for the threshold for additional-rate taxpayers to be reduced from £125,140 to £100,000.
National Insurance changes for self-employed and landlords
Unsurprisingly, the report also targeted landlords, suggesting the government charge National Insurance on rental income, ‘so that landlords pay the same tax on rental income as tenants pay on their earnings.’
It suggested landlords pay 20 per cent National Insurance for basic-rate taxpayers and 8 per cent for those with higher incomes.
Elsewhere, it called for National Insurance contributions to rise 300 per cent from 2 per cent to 8 per cent above £50,000, to address the ‘substantial distortion’ that sees self-employed corporate lawyers and accountants paying less tax than bankers.
5. Council tax reform
The government has already trailed changes to the council tax system, to target wealthy areas with lower-than-average tax rates.
It will mean households in wealthy areas, including London and the home counties, will be hit with huge council tax increases.
It is in line with the think tank’s plans to reform the ‘regressive’ council tax system by revaluing all properties, followed by ‘automatic annual updates’ to avoid relying on bands to set tax levels.
6. Bring VAT registration down to £30,000
Last year, the threshold at which a business pays VAT increased from £85,000 to £90,000.
However, under Bell’s plans, this would drop to £30,000, adding to the administrative burden for smaller businesses.
The think tank said the previous £85,000 threshold means companies ‘hold back from expanding and instead bunch below the VAT threshold’.
‘For the VAT threshold specifically, the best outcome would be lowering it to the point where almost no business owner would consider the option of deliberately staying below that level of turnover.’
7. Per mile charges for electric vehicles
Finally, the think tank proposed a 6p ‘per mile’ charge for electric vehicles, to ensure taxes don’t fall on poorer households that haven’t made the switch.
It said: ‘Fuel duty is expected to raise £24billion in 2023-24, but our rapidly growing electric vehicle fleet does not face any equivalent tax.’
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