If you were chancellor what would you do?

I am sure we would all agree that being the UK Chancellor of the Exchequer, would not be an easy job, but realistically, what could, or would ‘we’ do differently with the current circumstances?

On the one hand there is the Country’s economic position with uncertainties caused by the imposition/ongoing discussion regarding tariffs from across the Atlantic, stubbornly low growth figures, the tax rises announced last autumn beginning to bite, the slowdown in recruitment and the impacts of new, as well as continuing, conflicts around the globe.

The Chancellor needs to balance which hand will win at any given time and this will often be a knife-edge decision.

At the time of writing, the Bank of England have kept interest rates on hold at 4.25% and we understand this may have frustrated the Chancellor, who will have an eye on borrowing costs and growth in the UK economy, both of which would benefit from a drop in rates.

In the same week as the interest rate decision, there was the release of the UK public sector borrowing figures for May, showing another rise to £17.7bn, the second highest for the month on record and above that predicted by a poll of economists from the City of London.

What decisions would these circumstances lead you or I to make? More importantly, what might this Chancellor do?

Could the Chancellor be said to be struggling to keep within the ‘set in stone’ spending rules and does the low growth of the economy suggest the headroom from last autumn’s budget will be lost?

There are economists who think that due to our underperforming economy, and when taken together with higher borrowing costs, it may mean that a further £10bn to £20bn of funds will be required by the time of the autumn 2025 budget.

If this is correct, it is thought unlikely that the Chancellor will seek this additional requirement for funds from further spending cuts and so if we assume that amending the fiscal rules remains off the table, the option that is left is further tax rises.

It has been reported that the Deputy Prime Minister sent the Chancellor a list of tax-raising ideas at the time of the Spring Statement.

It should be remembered that any potential new tax rises are set against the Labour manifesto promising not to increase certain defined taxes. This seemed to morph slightly into what is now the almost constant mantra that the government will not increase taxes for working people (by whatever restricted definition is currently being used). We should also remember the vow made after the Budget in October 2024, that the government would not come back and increase tax or borrowing on the same scale as those announced at that Budget

We may yet see a similar and rather tortured approach to language to justify the government’s decisions, if any of the following are what is in store for this autumn:

• A further freeze in the income tax and national insurance thresholds beyond April 2028 seems to be more and more likely now; it is thought this could generate around £4bn a year. It was reported that one of the suggestions by the Deputy Prime Minister, specifically targeted the 45% tax rate for this freeze to bring more people into the highest rate of income tax. This could suggest that such taxpayers are not within the government’s definition of working people.

• It was also reported that the Deputy Prime Minister wanted to abolish the current tax-free dividend allowance of £500. This may raise approximately £325m each year.

• Increasing the tax on dwellings owned by entities such as companies was suggested, as the data being used indicated that most of the people paying the ATED charge are living in big homes in London. n Landlords are another target of this government and are again in the crosshairs with the Renters Rights Bill. A further increase in taxes on rental income cannot be ruled out for property businesses owned by both corporate and non-corporate entities.

• One option to increase taxes that would not be popular and would be a direct about turn from the Labour manifesto (but would be the simplest and the most effective measure), is to reverse the employee’s national insurance cut made by the last Conservative government. At the time, this was said to be worth £20bn. Could the adverse economic and world circumstances justify this as a potential change?

• An area that the Chancellor has so far left alone is the tax-free uplift to asset values that applies on death. We could see this relief removed as part of continuing the changes to what happens at death with inheritance tax.

• It was reported that the Deputy Prime Minister proposed removing inheritance tax relief for shares traded on the Alternative Investment Market (AIM). This relief currently provides an exemption for 50% of the value of the shares held at death. Removing it completely is thought to potentially raise between £100m and £1bn per year.

• A further target in the inheritance tax sphere could be changes to the lifetime gifts regime. Presently in most cases, if a donor survives seven years, there will be no inheritance tax on the gift. We could see fewer options to pass wealth down the generations, free of tax, during the lifetime coming in.

The information contained within this publication is given by way of general guidance. Specialist advice should always be sought in relation to your particular circumstances. No liability is accepted by Ensors for any actions taken without seeking appropriate professional advice.