Budget 2024: how will the government raise revenue?

The new Labour government is preparing for its first Budget, in which it must raise the sums necessary to fulfil its manifesto promises without breaking its fiscal rules.

When Rachel Reeves gets up to deliver the Budget speech on 30 October it will be a "huge moment", not only because it will be delivered by the first female chancellor in the country's history, but also because "no new occupant of the post can ever have faced so many competing challenges", said The Observer's political editor Toby Helm.

While some challenges, such as a £22 billion "black hole" in the public finances, can be "blamed" on the previous Conservative administration, others are of the government's own making, such as its set of strict fiscal rules. Namely, to balance day-to-day spending with tax revenues within five years and to reduce national debt as a share of the economy by the end of that period.

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The chancellor has to stick to these fiscal rules, while delivering Labour's manifesto promises to not raise taxes for working people, to repair public services, and to create the fastest-growing economy in the G7.

What did the commentators say?

On Monday, Reeves "gave her clearest signal yet" that business taxes would rise in this month's Budget, repeatedly refusing to rule out an increase in employers' National Insurance contributions, said the Financial Times. Speaking to journalists at an international investment summit in London, Reeves said business leaders understood that she had to take "difficult decisions" to balance the books and make the UK an attractive place to invest.

It was a measure the prime minister twice refused to rule out when speaking to the BBC's chief political correspondent Henry Zeffman this morning, as Starmer underlined his party's manifesto promise that taxes would not be increased for "working people". "It wasn't just the manifesto, we said it repeatedly in the campaign and we intend to keep the promises that we made in our manifesto," he said.

Introducing National Insurance at the highest current rate of 13.8% on employer pension contributions could raise as much as £17 billion a year for the exchequer, according to the Institute for Fiscal Studies (IFS). Yet IFS director Paul Johnson has argued that hiking employers' NI contributions would violate Labour's manifesto commitment. "I went back and read the manifesto and it says very clearly: we will not raise rates of National Insurance," he said.

Another potential source of revenue is adjusting capital gains tax. Starmer was forced to squash speculation this week that Reeves was considering a rise of up to 39%. At Monday's investment summit, Starmer told Bloomberg that such speculation was "getting pretty wide of the mark."

But adjusting capital gains tax "would not be targeting working people" and therefore "an increase seems almost a given", said Sebastian Payne, director of centre-right think tank Onward, writing for the i news site. The tax is currently between 10% and 24% on gains made from properties, assets and shares, "and you can envisage rises to the mid-20s", said Payne. Yet HMRC has previously warned that raising it too high would "not result in higher revenues, as businesses will simply change their behaviour and not offload assets".

There are also likely to be changes to Reeves' fiscal rules, with one of the "bolder shifts" floated by Treasury officials being a change to how the government measures debt, said The Times' economics editor Mehreen Khan. Treasury officials have pointed to using a measure of "public sector net worth", which would allow the government to offset assets, such as the £236 billion owed in student loans, against the wider national debt. Such a move could potentially unlock "£60 billion in headroom" for Reeves.

What next?

Reeves has a difficult balancing act in front of her. "The problem is we now appear to be ready to pan business at the very time when we are trying to get growth going," one government source told The Observer. "The real effect of hitting businesses with NI rises will turn out to be on working people. They will be the ones who receive smaller pay rises as a result. The other shakeout will be job losses."

Another former Treasury insider pointed to an apparent lack of planning. "In 1997 and 2010 the plans were much more advanced. This lot are having to do a lot of catch-up," said the source. "They need a reset and a relaunch, a complete change of gear. The obvious time to do that is the budget. But there is no easy way. You can't raise these sums without some pretty mighty rows."