How the Chancellor could raise money without taxing the rich

Newsletter issue – November 2025

With the Government promising not to raise income tax, National Insurance or VAT, what options are left for them to try and fill the gap in public finances? They say that those with the broadest shoulders should bear the brunt of the tax burden, but the Chancellor says she has ruled out a wealth tax.

Economists are suggesting that the Government will have to break its promise which will target average earners as well as the wealthy. For example, a 1% increase in the basic rate of income tax could raise £6.5 billion, costing average earners £250 per year extra. A more palatable option might be to extend the tax threshold freeze beyond 2028, which could raise £7-10 billion annually due to 'fiscal drag'.

They believe that VAT and fuel duty could be reformed - the latter has been frozen since 2011, and it is believed a 1% increase could raise £240 million. It would have a knock-on effect of increasing VAT revenue as well. Regarding VAT, exemptions under the current system could cost £89 billion by 2029 so reducing those would raise revenue but may hit poorer households. The Chancellor could also reduce the VAT registration threshold - it is one of the highest in the OECD. A reduction from £90k to £30k could raise £2 billion.

None of these would prove popular with the electorate, so introducing hypothecated taxes could be an option. This is where taxes raised are earmarked for specific services, such as the NHS or social care. However, past attempts have been scrapped by previous governments.