Rachel Reeves is predicted to impose additional "sin taxes" on British consumers, according to leading forecasters, a move widely viewed as regressive taxation that could impact those on lower incomes.
The Chancellor is faced with the task of raising £20bn in taxes in this year's Autumn Budget to replenish her "already paltry" margin of £9.9bn in headroom, as per Pantheon Macroenomics, as reported by .
º£½ÇÊÓƵ economists Robert Wood and Elliott Jordan-Doak from the firm suggest that costs arising from welfare savings U-turns and lower than anticipated tax receipts could diminish her fiscal buffer.
They propose that Reeves might turn to sin taxes, potentially including levies on gambling and junk food, to rebuild her buffer, while a "stealth tax" through extending a freeze on income tax thresholds could assist in filling an estimated £13bn fiscal gap.
Scrapping the two-child benefit cap, which would cost approximately £3.2bn, and a surprise move at the Budget could result in increased government expenditure.
Backed by the progressive think tank Institute for Public Policy Research, former Prime Minister and Chancellor Gordon Brown suggested that increasing levies on online casinos and slot machines to 50 per cent could provide the Treasury with sufficient funds to cover the costs of abolishing the cap.
Regressive taxes
Other potential "sin" taxes beyond gambling could involve higher duties on tobacco, alcohol or sugar, as well as junk food.
The government has already taken steps to curb junk food sales by introducing additional regulatory requirements for supermarkets regarding healthy food standards.
Charitable organisations and health campaigners, including Diabetes º£½ÇÊÓƵ and the World Cancer Research Fund, have previously advocated for increased levies on sugary drinks and high-sodium products.
Whilst some duties automatically increase with inflation, Rachel Reeves could choose to push tax rates even higher.
The government has also launched consultations on proposals to eliminate the exemption from sugar taxes on milk-based beverages, indicating that milkshakes and lattes might face increased taxation.
The Institute of Economic Affairs (IEA), a free market think tank, has characterised sin taxes as regressive since they extract a "greater share of income from the poor than from the rich in all plausible scenarios."
Christopher Snowdon, head of lifestyle economics at the IEA, said: "The sugar tax has been such a dramatic failure that it should be repealed, not expanded.
"It has been costing consumers £300 million a year while childhood obesity rates have continued to rise."
Meanwhile, tobacco firms have contended that the presence of a tax gap valued at £1.4bn between 2023 and 2024, which demonstrates the disparity between tax paid to HMRC versus the tax that should be paid based on consumption, provides evidence of a thriving black market for cigarettes and tobacco products. An alternative for Rachel Reeves could be to modify fiscal regulations by advancing a rule, due to take effect in 2027, that permits her to maintain a forecast deficit of 0.5 per cent of GDP in daily government expenditure, as suggested by Pantheon Macroeconomics.
This alteration could provide her with £17bn in financial leeway, but it might unsettle bond traders due to the implications of increased borrowing and her disregard of "non-negotiable" rules.
