As if speculations about what might happen inside Budget It’s been inevitable for the last few months. Suggestions for what could be included had, in a sense, already begun workforce has already been selected.

When the party published its general election manifesto in June, it said:tax lock for working people” – a commitment that does not increase income tax, national insurance (NI) or VAT rates.

Later in the summer, Chancellor Rachel Reeves He followed this with a statement:£22 billion black hole”in public finance and Sir Keir Starmer He warned that the upcoming Budget, which had by then been approved for October, would be “painful”.

He added that those with the “broadest shoulders” should carry the heavier load.

All these clues forced people to piece together what might be announced. There would be tax rises, that was clear, but how would Labor raise the kind of sums being touted without increasing taxes on workers?

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This was followed by a series of briefings on possible measures, from capping wealthy retirees’ tax-free allowances to scrapping the generous tax break on the retirement savings of high earners.

But now, despite their assurances, it looks like Labor will revert to NI and income tax, the two taxes that chancellors always work on when they need to raise cash quickly.

As chancellor, Rishi Sunak frozen income tax thresholds until 2026. He also planned to raise national insurance to finance rising social care costs. After him, Jeremy Hunt also extended the freeze until 2028.

After them, Labor looks set to extend the freeze until at least 2029. It looks like the party will increase the NI rate on either pensions or wages for employers; Experts say that this tax increase will fall on employees over time.

So why do governments always turn to income tax and NI when they need to raise money?

Largest tax amounts

Different taxes provide different amounts of money for the Government, and NI and income tax are the biggest revenue raisers.

The Office for Budget Responsibility predicts NI contributions (NICs) will increase by £168.1bn in 2024-25; This corresponds to 14.8 percent of all tax revenues.

Income tax will raise £302.7bn. This represents 26.6 percent of all revenues.

Collectively these two taxes account for more than two-fifths of all income, while capital gains tax (CGT) and inheritance tax (IHT) raised just £15bn and £7.5bn respectively.

This means that if the Government wants to raise large sums, small adjustments to NI and income tax are an easier way to go than sizeable changes to smaller taxes.

“It’s really difficult to raise significant amounts of money without doing something about NI, income tax or VAT,” said Thomas Pugh, a British economist at audit, tax and consultancy firm RSM UK.

“This is mostly due to the large number of people paying these taxes. While fewer than 30,000 people pay income tax for IHT, there are a figure of 37.4 million; “There just aren’t enough people paying IHT and CGT to grow incomes in a truly sustainable way,” he says.

Behavior risks

The second reason why income tax and NI are always in the chancellor’s crosshairs is that it is harder than other taxes for people to change their behavior to avoid increases.

In cases such as IHT, people can sometimes bypass increases by, for example, gifting cash early in life, while income tax is charged directly from wages by HMRC.

“Broad-based taxes on earnings are always most attractive to a chancellor. You can raise money from reforms that affect high-income people, but you also need to work to make sure you plug potential leaks,” explains Arun Advani, director of the Center for Tax Analysis.

It is claimed that Labor is already feeling some of this pressure.

In September, it was reported that the party was reconsidering parts of its manifesto plan. non-domicile tax status due to concerns that the reforms would generate less cash than expected.

There were concerns the changes would mean more people leaving the UK.

Unlike this appropriation of the rich’s cash, “the average person cannot afford to change their behavior to reduce their tax bill, because it also reduces their real income,” Advani explains.

growth risk

Labor has put much of its focus on economic growth.

The party’s manifesto promised to “accelerate growth” and this has been a key talking point since the Chancellor came to power.

It makes economic sense. With rapid growth, people have more money and therefore pay more taxes without having to increase tax rates overall.

This means you theoretically have more money to spend on utilities.

However, many economists believe that tax increases such as the CGT hinder growth; whereas this is less likely to happen with small increases in broad-based income taxes.

“All the options available to the chancellor involve difficult decisions about compromises. “The direct impact of taxes on savings and investment may fall mainly on the better-off, but these taxes are also the taxes that do the most damage to long-term economic growth,” says Julian Jessop, an independent economist at the libertarian-leaning Institute for Economics.

“By contrast, increases in broader taxes on income are less likely to deter investment and more likely to be permanent. But they also mean that more of the direct burden will be felt by low-income people. The political outlook is terrible, with the manifesto pledge not to increase taxes on ‘working people’.