What to Expect in Labour’s Autumn Budget and Who Might Feel the Pinch

As Labour prepares to unveil its first Autumn Budget in over a decade, Prime Minister Keir Starmer and Chancellor Rachel Reeves have been forthright: this budget won’t be about handouts. With an emphasis on filling what the Labour government sees as a £22 billion fiscal shortfall, there’s little expectation of widespread relief, and instead, many are bracing for a series of rigorous tax adjustments. While the headline income, VAT, and National Insurance Contributions (NICs) will remain untouched, Labour’s stance on wealth taxes signals substantial changes ahead.

Labour’s commitment to keeping the income tax bands unchanged brings with it a hidden effect: fiscal drag. With inflation and wage growth pushing more individuals into higher tax brackets, the government captures a greater proportion of income without adjusting the threshold rates. So, despite the stability of headline tax rates, the weight of tax on take-home pay is set to increase for many earners.

Instead of traditional income tax hikes, Labour is pivoting toward wealth-targeted taxes to generate revenue, placing higher stakes on individuals, banks, and corporations in specific sectors. Here’s a closer look at the anticipated changes.

Inheritance Tax Overhaul: Revisiting Exemptions

Inheritance tax (IHT) reform is a key component, with Labour reportedly considering cutting exemptions and allowances that could impact estates beyond the current threshold of £325,000. Today, only about 4% of estates hit this threshold, thanks to IHT allowances, including those for charitable donations and spousal inheritances. Removing or reducing these exemptions would broaden the tax's reach, potentially increasing its impact on estates with complex inheritance structures.

Capital Gains Tax: Expecting Higher Rates on Profits

Capital Gains Tax (CGT) typically affects the wealthiest taxpayers, as it’s levied on profits from sales of assets such as shares, secondary properties, and other high-value items. With a projected increase in CGT rates, this move is poised to impact individuals and businesses alike, particularly those dealing in property and stock investments.

Private Equity Carried Interest Tax: A Shift to Income Tax

Labour’s proposal to alter the carried interest tax regime could have a significant effect on private equity fund managers. Currently taxed as capital gains, this income would instead be subject to standard income tax, a change that would raise the tax burden substantially. For private equity professionals and their investors, this policy could add considerable friction to profit structures.

Banking Tax Proposals: Levies on Large Institutions

UK-based banking giants, including Barclays, HSBC, and Lloyds, may see a higher banking levy, with a proposed increase targeting large institutions. With recent trends in financial services reflecting record profits, this move is aimed at recapturing some of the windfall revenue for the public sector. An elevated banking surcharge could reduce net profits, prompting strategic shifts as banks account for the higher tax expense.

North Sea Windfall Tax Increase

The windfall tax on North Sea energy companies may increase to 38%, with Labour targeting companies such as BP and Shell. With the sector recently posting significant gains due to high oil prices, the tax aims to redistribute part of these profits toward offsetting public spending. However, the measure is likely to face resistance from the energy sector, which argues that higher taxes could deter future investments in energy infrastructure.

Pay-Per-Mile and Stamp Duty Changes

Labour’s pay-per-mile (PPM) tax proposal could represent a fundamental shift in how the UK taxes vehicle use. Intended to replace lost revenue from fuel taxes as electric vehicles (EVs) become more common, PPM would charge drivers based on mileage. For high-mileage drivers, especially in rural areas, this could mean a substantial increase in travel expenses. Additionally, a rollback on stamp duty exemptions set under Liz Truss may see more homebuyers paying stamp duty, particularly if Labour reduces the exemption threshold for first-time buyers.

Non-Dom Tax Status Reform

An end to non-dom tax privileges would mean a considerable shake-up for the UK’s non-domiciled residents, a group that has enjoyed significant tax benefits under previous administrations. By bringing these high-net-worth individuals into the standard UK tax framework, Labour expects to recapture a portion of the funds previously kept out of reach by offshore tax status.

What to Expect from the Autumn Statement

As Labour’s Autumn Budget seeks to tighten the tax framework, sectors like banking, energy, and private equity are poised for notable impacts. Labour's overall approach signals a budget focused on extracting more from wealth while maintaining stability in everyday taxes. However, as fiscal drag takes effect, even those outside the wealthiest brackets may feel the pinch.

As Reeves prepares to deliver this year’s Autumn Statement, all eyes are on whether the budget will manage to balance fiscal prudence with the economic incentives necessary to keep sectors productive amid mounting tax burdens. This budget marks a significant pivot toward Labour’s economic policies, with more details set to unfold on who will be bearing the brunt – and who, if anyone, might emerge unscathed.