Four Potential Revenue Raisers for Labour Ahead of the Budget

Chancellor John Healey approaches this week's Budget facing a shrinking financial buffer and rising demands for public spending. BBC News reported that the cash buffer designed to help the government meet its fiscal rules and reduce borrowing may have halved over the past six months, falling from roughly £24bn down to £11bn. This squeeze stems largely from higher interest rates the government must pay when borrowing from private investors.

At the same time, the administration faces intense pressure to finance defence spending and assist citizens dealing with rising living costs. Because the Labour 2024 election manifesto explicitly ruled out hikes to income tax, National Insurance, and VAT, the chancellor must look elsewhere to raise funds. While capital gains tax increases and a mansion tax were previously discussed, government sources have since ruled those options out.

Increasing Corporation Tax on Major UK Banks

One primary option on the table involves raising taxes on the banking sector. UK banks have experienced rising profits recently due to higher interest rates charged on borrowing. Bank bosses widely anticipate a tax hike in the upcoming Budget.

Tax Policy Associates estimates that raising the corporation tax surcharge on banks from 3% to 5.5% could generate between £1bn and £2bn annually for the Treasury. While this measure would initially cut into profits distributed to shareholders, including wealthy investors, banks warn of potential negative consequences. Financial institutions suggest that higher taxes might discourage UK investment and cost jobs. Furthermore, ordinary savers could see indirect impacts if pension funds hold bank shares, and banks might pass costs onto consumers through reduced savings rates or steeper borrowing fees.

Raising Taxes on Electronic Gaming Machines

Former prime minister Gordon Brown has urged the chancellor to increase taxes on electronic gaming machines situated inside venues like gambling shops and adult entertainment parlors, pointing to social harms caused by problem gambling. These machines permit payouts of up to £500 per game.

The Social Market Foundation think tank projects that raising the levy on these specific devices from 20% to 40% could yield anywhere from £275m up to £460m, contingent upon player reactions. While gamblers might face worse odds if operators pass the tax down, anti-gambling advocates argue this could deter harmful play. Research highlights that these machines cluster disproportionately on deprived high streets, with one in four casino game players gambling at risky levels. Conversely, the gambling industry warns that lower profitability could force betting shop closures, which might subsequently reduce financial contributions to horse racing and threaten jobs in that sector.

Targeting Online Marketplaces to Close the VAT Gap

Reports indicate the chancellor plans to make major online marketplaces like Amazon, eBay, and Temu legally responsible for collecting VAT owed by third-party retailers. The Treasury currently estimates it misses out on approximately £12bn a year in unpaid VAT, known as the "VAT tax gap".

A portion of this missing revenue materializes because internet-based merchants neglect their tax obligations, occasionally concealing their foreign bases or repeatedly dissolving and relaunching under alternative company names to bypass liabilities. Making platforms responsible rather than individual sellers aims to crack down on this evasion, potentially raising roughly £1bn in extra VAT annually. Amazon itself supports the initiative, estimating it could yield £700m a year for the government. Although some sellers might raise prices or leave platforms, the policy would establish a fairer playing field for compliant businesses.

Combined, these three tax proposals would generate a maximum of roughly £3.5bn annually. This sum remains relatively small compared to the broader financial shortfall the chancellor faces when attempting to restore his fiscal headroom and fund new expenditures.

Welfare Spending Pressures and Potential Savings

Beyond taxation, the wider debate encompasses the nation's welfare bill. Prime Minister Andy Burnham expressed a desire for a lasting reduction to welfare spending over the summer, while opposition parties press for deep expenditure reductions regarding working-age support programs.

The Conservatives propose £36bn in yearly savings by restricting benefit access, while Reform estimates £50bn, though independent analysts question the realism of such figures. Working health and sickness benefits have surged since the pandemic, with the Office for Budget Responsibility projecting overall costs to climb from £68bn this year to £81bn by 2031. Keir Starmer and Rachel Reeves previously attempted to trim £5bn annually from these benefits by 2030, but abandoned the effort following a backbench Labour MP revolt.

Independent welfare experts note that savings are possible but would likely demand upfront investment in employment support, potentially neutralizing near-term Treasury savings. Campaigners also warn that health and disability benefit cuts risk pushing vulnerable individuals into poverty, even though supporting claimants into work could sustain or increase their overall incomes.

Syed Aqeel — verified this story.