by Xinhua writers Zhao Xiuzhi, Larry Neild
LONDON, Oct. 14 (Xinhua) -- The countdown has begun for the new British government to unveil its first fiscal plan, which will also be the first budget since the Labour Party returned to power after 14 years.
On Oct. 30, Chancellor of the Exchequer Rachel Reeves, Britain's first female chancellor, will make her budget statement to the House of Commons, outlining the government's tax plans and major decisions on public spending.
Since Labour took office in July, both Reeves and Prime Minister Keir Starmer have repeatedly warned that "difficult decisions" are on the horizon and the October budget will be "painful."
During the election campaign, Labour pledged not to raise income tax, National Insurance (NI), or Value Added Tax (VAT) for "working people." This commitment has left economists, politicians and the public speculating about what tough decisions Reeves will present in just a few weeks.
POTENTIAL TAX CHANGES
Despite the promises of not hiking taxes for working people, the chancellor said that some taxes will need to rise, noting she's facing a 22-billion-pound (28.76 billion U.S. dollars) "black hole" in the public finances left by the former Conservative administration.
There has been widespread speculation about raising capital gains tax (CGT), which is applied to profits from the sale of assets that have increased in value, such as second homes, shares or investments.
According to The Guardian, Reeves is considering raising the CGT rate to as high as 39 percent in the budget. Currently, top-rate taxpayers pay between 20 and 28 percent, depending on the asset type.
Labour may also revise inheritance tax rules, which currently levy a 40-percent tax on estates valued over 325,000 pounds (424,463 dollars). Other possibilities include fuel duty increases, pension tax relief revisions, non-dom tax status adjustments, and higher employer NI contributions.
Many of these potential measures are thought to target wealthier individuals, in line with Starmer's statement that "those with the broadest shoulders should bear the heavier burden."
The budget is considered tough due to commitments not to touch the main tax revenue streams, said Steve Nolan, an economics lecturer at Liverpool John Moores University.
"By promising not to touch those at all, they're having to essentially scrabble down the back of the sofa looking for other fiscal policies, policies that could be socially justified," said Nolan.
Economic expert Professor John Bryson from the University of Birmingham said trade union members and those defined as working people will be better off after the budget.
Everyone else, including some of the most vulnerable, will be worse off, and the very wealthy are deciding to leave Britain, said Bryson.
WINDOW FOR TOUGH DECISIONS
Reeves has already announced some "tough decisions" in recent months, including a controversial reform of winter fuel payments. Previously, all individuals aged over 66 were eligible for the payment, which helps old people with winter energy bills. Under the new rules, only low-income pensioners receiving certain benefits will qualify.
Reports suggest that about 10 million pensioners will lose the payment, saving the government approximately 1.5 billion pounds (1.96 billion dollars) annually.
The government has also confirmed that it will add VAT to private school fees at the standard rate of 20 percent, starting from January 2025, despite warnings that schools are not yet ready.
Professor Iain Begg, an economist from the London School of Economics and Political Science, told Xinhua: "There's plenty of speculation about what Reeves might announce, but it's important to take a step back and say this is an early stage in a new government."
Labour's overwhelming victory in July, in which it secured 412 out of 650 seats in the House of Commons, provides a good opportunity for some difficult decision-making, he noted.
"It's an opportunity that might never be replicated to do some of the tough things because they have both a large majority and still some goodwill from having won the election so comprehensively just a few months ago," said Begg.
Labour has four and a half years to fix the economy and the British society before facing judgment in the next election in 2029, he added.
POTENTIAL INVESTMENT
Speaking to local media recently, Starmer said the budget will focus on boosting living standards, reviving healthcare services and "rebuilding Britain," pledging extra investments in schools, hospitals, housing and transport.
Starmer has made clear his primary goal is to stimulate economic growth, and the government is hoping that "billions of pounds of public investment unveiled at the budget will help attract more private investment to the UK," said The Guardian.
Begg said Labour seems to be on the right track in tackling Britain's economic challenges, noting that Reeves has "talked very much about investing in new energy, supply systems, improve the national grid, all the sorts of things that can lead ultimately to lower costs, even though they might cost money in the short term."
Nolan added that after years of under-investment, there are a lot of "low-hanging fruits" within the country at the moment.
"I think there's an appetite from the public for a greater amount of investment, a greater amount of a more active state than we've seen in the past. And if they don't grasp that, there's definitely a risk in the future," Nolan said.
However, Professor Bryson cautioned that the British governments have a poor track record with investment-targeted policies. "Too often the money is wasted or there is no return on the investment," he warned.
Nolan said it's unlikely the budget will turbo-charge the British economy. "We're looking at a much slower, hopeful acceleration of the economy."
"The returns on a lot of this investment take time. The returns on attracting capital from the private sector into the country take time. We're not going to see a mass explosion," he added. ■
