RSM UK questions Reeves’ upcoming “smorgasbord” tax budget

Core Viewpoint - The UK government is preparing a range of smaller tax adjustments to address a budget shortfall of approximately £10 to £15 billion, with significant tax-raising measures currently not on the table [1][2]. Tax Measures - Potential tax measures include reforming the dividend tax by increasing the basic rate from 8.75% to up to 16.5%, which could generate £1.5 billion [3]. - Introducing a £100,000 lifetime cap on Individual Savings Account (ISA) contributions may add £1 billion to government revenues [3]. - Inheritance tax reforms could include extending the potentially exempt transfer (PET) period from seven to ten years, potentially raising about £400 million [4]. - Abolishing the residence nil rate band could generate an estimated annual revenue of £2.2 billion [4]. - The combined total of other potential measures could raise an estimated annual revenue of about £13.5 billion [4]. Economic Implications - The approach of smaller tax increases raises concerns about the credibility of revenue estimates, as behavioral changes may significantly impact revenue generation [5][6]. - Increased duties and employer taxes may keep inflation higher for longer, affecting the Bank of England's interest rate decisions [7]. - Relying on fiscal drag and threshold freezes rather than raising tax rates could delay economic impacts, potentially undermining the credibility of the budget [8].