Labour eyes £3.5bn tax hike on banks, gambling and online sales

The government is considering several tax increases as a means to restore its financial buffer without raising income tax, VAT, or National Insurance. Economists estimate the government's cash buffer has potentially halved from approximately £24bn to £11bn in the past six months, largely due to rising interest rates on borrowed money. Chancellor John Healey faces pressure to increase revenue to demonstrate the government's commitment to reducing borrowing by the end of its term, while also needing funds for the cost of living and defence spending.

Increased Taxes on Banks

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One potential measure involves increasing the surcharge that banks pay on their corporation tax. Tax Policy Associates estimates that raising this surcharge from 3% to 5.5% could generate an additional £1bn to £2bn annually for the Treasury. Banks have experienced increased profits recently due to higher interest rates on borrowing. However, banks have warned that such a tax increase could deter investment in the UK, potentially impacting jobs. Shareholder investments, including pension funds, could be indirectly affected, and customers might face higher borrowing costs or lower savings rates.

Higher Taxes on Gambling Machines

Another option being considered is a hike in the tax on electronic gaming machines, such as those found in betting shops. Former prime minister Gordon Brown has advocated for this increase, citing concerns about problem gambling. The Social Market Foundation (SMF) think tank estimates that doubling the tax on these machines from 20% to 40% could raise between £275m and £460m annually, depending on gambler response. While this could discourage some users, the gambling industry has cautioned that such a tax rise could lead to betting shop closures and affect revenue for horse racing.

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VAT Collection by Online Marketplaces

Reports indicate the Chancellor is preparing to make large online marketplaces, including Amazon, Ebay, and Temu, responsible for collecting VAT from retailers operating on their platforms. The Treasury estimates it loses around £12bn annually due to non-compliance with VAT rules by online sellers, a figure referred to as the "VAT tax gap". This measure aims to address tax evasion by overseas sellers and those who cease trading to avoid liabilities. It is projected to raise approximately £1bn in extra VAT per year, with Amazon estimating its contribution at £700m. This change could lead to price increases for some consumers but would also create a more level playing field for compliant businesses.

Welfare Spending Considerations

The combined revenue from the aforementioned tax measures is estimated to reach a maximum of around £3.5bn annually. This sum is considered relatively small compared to the potential financial needs for restoring the government's buffer and funding new spending. While there have been discussions about reducing welfare spending, particularly on working-age benefits, which are projected to increase from £68bn to £81bn by 2031, experts suggest that significant savings would likely require upfront investment to help individuals into work. Cuts to health and disability welfare could reduce incomes for recipients, though support for employment could potentially maintain or increase overall incomes.