Since Andy Burnham became Prime Minister in late July, his Labour party has laid out a vision for change that involves rebuilding public services and bolstering economic growth.
However, new measures such as cutting VAT on household electricity bills and reducing business rates for certain sectors will need to be funded, raising questions about how the government balances support for households and businesses within its wider spending commitments.
As Mr Burnham’s new Chancellor John Healey prepares to deliver his first Budget on October 28, attention is increasingly turning to how this will be achieved – and whether increased taxation will be the answer the government turns to.
In this article, we examine the tax changes business should look at, and some policy ideas that have already been floated.
At September’s Labour Party Conference, Mr Burnham made a major policy announcement when he revealed that Labour would end the existing state pension triple lock from 2030.
Introduced in 2010, the triple lock was designed to ensure the value of the state pension wasn’t overtaken by the cost of living or the income of working people. It guarantees that the state pension will increase every April by the highest of inflation, earnings growth or 2.5%.
Mr Burnham’s plan will scrap the link to rises in yearly average earnings on an annual basis. Instead, the pension will be tied to average earnings growth over the longer term.
The change will bring an end to what is known as the ‘ratchet effect,’ where the state pension consistently outpaces average wage growth year-on-year. For self-employed individuals relying on it as a primary or sole source of income, a more slowly growing state pension comes with higher levels of financial pressure.
The conference also saw the government announce that it intends to crack down on what it has termed ‘bogus’ self-employment.
Business Secretary Jonathan Reynolds said Labour intended to close loopholes which he said are used to define workers as self-employed when they are not, leading to them being denied basic employment rights.
A planned consultation is likely to examine the presumption of worker status – which classifies a person providing labour as an employee or worker rather than an independent contractor – as well as the use of substitution clauses and extra protections for genuinely self-employed people.
In early September, Shadow Chancellor Andrew Griffith announced that a Conservative government would replace IR35.
Mr Griffith said the current rules have “badly let down” self-employed workers, but did not go into any detail about what a new system would look like.
It is notable, however, that the plans were not mentioned during the Conservative Party Conference. Labour, meanwhile, has previously ruled out repealing or changing the off-payroll working rules.
Prior to the General Election in 2024, then-Labour leader Keir Starmer committed his party to not increasing income tax, National Insurance or VAT.
Mr Burnham has pledged to maintain these manifesto promises, leading to speculation over what tax levers might now need to be pulled instead.
However, Mr Healey has already refused to rule out tax increases, citing high borrowing costs.
With the government facing a £35 billion public spending gap, nothing is off the table.
Business taxes, rates, and employment costs could rise. Business rates may not affect home-based freelancers or sole traders, but they could increase costs for businesses operating from commercial premises. The government will need to balance increasing revenue with its desire to boost growth and employment.
There has been speculation that Capital Gains Tax - imposed on the profit people make when they sell an asset that has increased in value - could be changed, through either higher rates or by removing or amending exemptions.
The main rate of capital gains tax was last increased in October 2024, and some commentators fear another increase would impact investment and entrepreneurship.
Levels of Capital Gains Tax are particularly relevant if you are self-employed and looking to sell or close your business.
Inheritance tax could also face reform, including changes to lifetime gifting, the seven-year rule and the treatment of assets on death. These changes would make early Inheritance Tax planning more important for families and business owners.
Away from the triple lock announcement, pensions remain a key area to watch. Anticipated changes include limits to pension tax relief, reduced annual allowances and further scrutiny of pension pots.
Labour’s manifesto commitment covers income tax rates, but does not extend to thresholds. Fiscal drag allows the government to raise additional revenue without increasing income tax rates. The personal allowance threshold has been frozen at £12,570 since April 2021 and is expected to remain at that level until April 2031.
VAT reform is another area to watch. While the standard rate of VAT is set to stay at 20%, there has been conjecture around whether the VAT registration threshold will change.
Currently standing at £90,000, this could potentially be increased to allow small businesses more room to grow before they are taxed, or decreased in an attempt to reduce competitive distortion by bringing more businesses into VAT.
There have been rumours about whether the gap between Income Tax and Dividend Tax could be reduced. This is important for anyone who runs a limited company. Dividends are taxed differently from salary, meaning potential changes to the way dividend income is taxed could affect company directors who pay themselves via a mix of salary and dividends.
Labour committed in its manifesto to capping the headline rate of Corporation Tax at 25% - a pledge that looks likely to be honoured. That doesn’t mean there won’t be sector-specific changes though, with the banking sector likely to be in the firing line.
The existing 28% combined corporation tax rate for bank profits could return to the 31% post-pandemic high, while a new windfall tax on profits is another measure reportedly under discussion.
Tax policy is likely to dominate debate ahead of the Budget, with the government facing a difficult balancing act between raising revenue and supporting economic growth.
Many of the measures under discussion would have significant implications for small businesses and the self-employed. Whatever decisions are reached, the hope is the government will recognise the important role such businesses play in driving economic growth.
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