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The UK Chancellor, Rachel Reeves, is planning to ease concerns within the business sector regarding the significant tax increases set to be announced in the upcoming Budget. Reeves and her allies are emphasizing that these tax hikes are intended to be a one-time measure to address a £40bn deficit in public finances.
It has been confirmed by government sources that one of the key changes will be an increase in national insurance contributions paid by employers. Reeves is also expected to introduce a corporate tax road map in the Budget, which will include capping corporation tax at 25% for the remainder of the parliament and providing advance clearance for tax rules on major projects.
The objective behind these measures is to offer tax certainty for the duration of the government’s term. The government aims to reassure businesses that the planned tax increases are a one-off adjustment to allow for better long-term planning.
Despite these assurances, some business groups remain skeptical about the possibility of future tax hikes in subsequent Budgets. The lack of clarity on this issue has left many uncertain about the tax landscape in the coming years.
Reeves is expected to generate around £17bn from a 2% rise in employer national insurance contributions, according to HM Revenue & Customs. An alternative proposal to impose NICs on pension contributions at a flat rate of 13.8% could potentially raise up to £18bn annually by the end of the decade.
Other tax increases are also anticipated for private equity executives and wealthy foreign residents benefiting from tax exemptions. Capital gains tax rates on share sales are likely to increase, and inheritance loopholes used by the affluent will be addressed.
The Budget is not expected to include commitments on further changes to capital gains tax or business rates, which may disappoint some business associations.
The government’s rationale for these tax adjustments is to stabilize public finances and increase investments in infrastructure and public services.
Reeves’ plan will also maintain the capital allowance regime introduced by the previous administration and uphold the current system of tax credits for research and development.
A new unit within HMRC will be established to provide investors with advance clearance on tax matters related to significant projects, aiming to simplify the tax system and provide clarity for investors.
Consultations on the new service are scheduled for early next year to gather feedback on its design and scope.
David Gauke, a former Treasury minister, emphasized the importance of maintaining promises made in tax policies to build trust with investors and ensure stability in the tax regime.