With interest rates on course to remain elevated and a new government keen to win over sceptical voters with cost-of-living measures, economists think tax rises at October’s Budget are all but guaranteed. But where will the new Chancellor look for revenue? Ali Lyon and Mauricio Alencar examine the most likely revenue raisers.

Speak to any avid Westminster watcher, and they will tell you that Andy Burnham wants to keep everyone happy, all the time. As at ease cosying up to key figures in the Corbyn administration as he was taking up a place in Tony Blair’s cabinet, Britain’s new Prime Minister – the caricature goes – hates making enemies, and likes people liking him.

But in the first few weeks of Burnham’s government, it is his Chancellor who has shown the greatest desire to promise everything to everyone.

John Healey has already committed to meet the country’s huge spending commitments – chiefly in defence and welfare. He has also vowed to stick to his party’s manifesto commitments on tax and voiced his unease at the general tax burden. And – above all – he has ruled out straying from Rachel Reeves’ self-imposed fiscal rules, branding them the “bedrock of economic stability and national security” in his first remarks as Chancellor.

But come his maiden Budget in October, the rubber will have to meet the road. His challenging economic inheritance makes adhering to all three of those promises at once impossible. A flurry of early spending commitments, compounded by the effect of the Iran war on government borrowing costs, means that the Treasury’s all-important headroom has shrunk. He could leave things as they are. But not only would that merely kick the can down the road, it would also leave him with no scope to pursue any of his own priorities. 

It looks highly likely that, even as gilt yields climb to their highest level this century, Healey’s Treasury will use a loophole in his predecessor’s fiscal rules to juice borrowing by roughly £9bn. But that accounting trick aside, the fiscal rules look sacrosanct.

Then there is the mountain of spending commitments. As defence secretary, Healey famously resigned over Starmer’s reticence to ringfence three per cent of national output for the armed forces – so watering down that pledge feels like a political impossibility. There may be an attempt to tackle the benefits bill, but, given early overtures from this government, those efforts are likely to be peripheral. All the while, Healey’s boss has boxed him into a corner on other cuts that could genuinely move the needle – like the triple lock.

Consensus among economists is that the only remaining option for our new Chancellor is tax rises. 

And so, with yet another major fiscal consolidation on the cards, where is Healey and his team most likely to look for revenue? And who is likely to be squeezed?

The probable tax hikes

Expansion of higher levies on expensive homes 

The Burnham-Healey axis has been desperate to keep a lid on pre-Budget briefing. There is a growing bank of evidence to suggest the rampant Reeves-era speculation was a growth killer: quashing firms’ investment plans and corroding confidence. 

But one rumour that has escaped Healey’s locked-down Treasury is that a major shake-up to the way property is taxed could be afoot. In that scenario, stamp duty – a transaction levy that economists hold responsible for gumming up the housing market – would find itself on the chopping block. As would council tax. And in their place, Healey would introduce an annual land value tax (LVT), charged at roughly 1.3 per cent.

Burnham quickly shut down the suggestions and ruled out major changes at his first Budget. But the overhaul commands a lot of support from economists and tax experts, and could represent a tax cut for most UK households, though homeowners at the top end of the market can expect to pay considerably more. A family with a home worth £2.6m currently pays a shade over £4,000 a year on council tax. Under an LVT regime at 1.3 per cent, that bill would rise to £30,534.

Equalise capital gains tax rates with income tax rates

Some taxes feel like easy pickings for Burnham and Healey come the Budget. One was given a heavy endorsement by then leadership hopeful Wes Streeting, whose resignation as health secretary kickstarted the Cabinet revolt against Starmer

It involves levelling out the tax rates across income tax bands with those on capital gains, the returns that investors see from assets increasing in value. Streeting and several influential Labour figures labelled this as a “wealth tax that works”, modelling the increase on a report by the Centre for the Analysis of Taxation. 

It would mean that there would be a 20 per cent, 40 per cent and 45 per cent rate on taxable gains depending on the taxpayers’ income tax band.

Equalising the levies could raise about £14bn a year, the Centre for the Analysis of Taxation predicted. But receipts from capital gains are volatile. They reached a record intake of £22.2bn in 2025/26 as former Chancellor Rachel Reeves increased tax rates but have yo-yoed in previous years between £12bn to £17bn. 

The charge would be controversial. Former Bank of England chief economist Andy Haldane warned that such a tax hike should not be used as a “cash cow”. Other economists have said the Treasury could in fact lose cash as investors shun the UK and look overseas, particularly if reforms are designed poorly. 

Vape shops crackdown, online sales levy and warehouse business rates tax 

We practically know at least one of the above is coming. Two days into becoming Prime Minister, Burnham said he would cut business rates for pub landlords by 20 per cent, funded by hiking levies on vape shops and some online sellers. 

The Prime Minister has also called in business rates guru Gerry Schurder to review how the charge is levied on pubs and hotels. But a report is not expected until March 2027 and any changes may be kicked back until the next property revaluation in 2029. That may mean any significant changes are some way off.

Lifting the level of business rates on warehouses in another area under contention. Before coming into Downing Street, Burnham’s allies including Louise Haigh publicly said that taxes on retailers’ warehouses would be increased. 

Windfall tax on banks

The bank tax rumours are back. Reform UK’s Nigel Farage said he would tax the banks if he came into office. The Green Party’s Zack Polanski also recently said he would target banks with more levies on profits. 

If Burnham wants to show that he is not of the establishment ilk, lifting the surcharge on bank profits over £100m banks could be an easy way forward. 

Top banking bosses have made their thoughts clear. JP Morgan’s Jamie Dimon reportedly told Healey in a call to avoid hitting banks, while Citi’s Dame Jane Fraser said banks in London already suffered more than those based in other major capital cities. 

Trade unions and the Liberal Democrats claim Rishi Sunak’s decision in 2023 to lower the surcharge to three per cent cost government coffers about £22bn over six years.

The possible tax hikes

Capital gains death tax

Under current rules, if you inherit stocks and shares from a relative, any inherited capital gains tax bill is wiped to zero. Proponents of the tax say it avoids double taxation with inheritance tax and makes that tax code simpler. But critics argue it is abused by the wealthy as a way of avoiding CGT almost entirely and discourages investors from reallocating capital into more productive assets.

A one of Burnham’s most influential allies, Haigh recently argued that “at a minimum”, the “loophole” – known as an uplift at death – should be closed; a move which economists think would raise between £1.5bn and £2bn a year.

End pension tax free lump sum?

Another option that has been in the rumour mill for years. Currently, savers can withdraw 25 per cent of their private or workplace pension pot tax free – up to a threshold of £268,275. In the weeks leading up to both the Reeves-era Budgets speculation that the Treasury might slash, or even abolish, that ‘lump sum’ was allowed to run wild. Households raced to extract large sums from their next eggs, only for the then Chancellor to leave things as they were twice.

Will this year be the year when the Treasury finally yank that lever? Doing so could raise as much as £2bn a year. But it would also be deeply unpopular. Pension providers and investment platforms are already lining up to warn Healey against it – with Royal London, AJ Bell and Pensionbee all warning that more speculation is bad, but slashing it would be worse.

Higher tax on enveloped dwellings and end stamp duty ‘loophole’

Last year, Angela Rayner reportedly wrote to Rachel Reeves with a series of Budget options to raise revenue. 

Among the policies were references to how corporations buy and sell residential property holdings. This involved increasing the annual tax on enveloped dwellings (ATED) and closing a commercial property “loophole” for stamp duty. 

The ATED is an annual levy on UK residential properties valued at more than £500,000 owned by companies, partnerships and investment schemes. It was introduced to stop people “enveloping” residential properties in corporate structures to avoid stamp duty taxes. 

The tax increased this year but a further increase could raise another £200m, according to Capital Economics. 

Ending a stamp duty “loophole” for enveloped commercial property could be another option used by Healey to raise about £1bn, according to the consultancy. Currently, commercial property is also subject to stamp duty although, often, the tax is avoided if property is placed in a company and the company is sold on. 

Burnham has been a staunch critic of stamp duty in the past, along with some top economists. Dan Neidle, founder of Tax Policy Associates, said that if the UK were to keep stamp duty, “it’s only fair it should apply to everyone”. 

Extending NICs coverage

If Healey felt the need to raise some serious cash, then the most likely avenue he’d pursue, says Panmure Liberum’s Simon French, is extending the scope of national insurance. Currently, employee national insurance only covers income derived from being an employee. Some economists believe this results in all sorts of perverse incentives, discouraging employment and adding complexity to the UK’s notoriously thorny tax system.

Bringing other sources of income – be that from investment, property or pensions – “reduces incentives to save and invest”, French said, adding: “This remains the area most targeted for additional tax revenue.” 

The move would raise some £22bn a year by French’s estimates, but amid all the speculation around capital gains, land tax and inheritance tax, it would be deeply unpopular.

The unlikely tax cut

Gary Stevenson’s wealth tax

Will it raise £26bn a year, like Gary Stevenson and inequality economists claimed, or nothing, like Dan Neidle and dozens of tax experts have argued? 

Calls for a wealth tax of two per cent above wealth in excess of £10m remain strong on the Labour backbenches. It was just last November that 21 Labour MPs called for Reeves to slap a two per cent annual levy on assets worth over £10m. 

But the charge would prove divisive even within the Cabinet. Former business secretary Jonathan Reynolds famously called the idea “daft” and its introduction would rile City executives and business chiefs.

To watch out for

Never rule out the rabbit

The government may not want to do anything that looks to add to inflation, but an expansion of sin taxes could be used as an effort to lower prices for other goods. Burnham has also been a staunch critic of stamp duty and Britain’s council tax system. 

Debates around carbon taxes are also heating up. The main takeaway from last year’s Budget was probably a move to switch some green levies from energy bills and onto general taxation. It would not be at all unsurprising for Healey to copy Reeves on that front. 

There are also consultations on several areas of policy to end before the Budget. Alan Milburn will state his recommendations for reducing youth unemployment and Sir Stephen Timms will set out his recommendations on disability benefits. Tax and spending measures could be used to solve Britain’s welfare problems. 

Healey is also expected to make devolution the centrepiece of his Budget. What this means for tax powers or spending is still somewhat uncertain apart from a plan to share income tax receipts with mayors. 

Many varying industry groups are heading into the Budget believing they will come out as the winner. But there will inevitably be losers, too.