Pensioners and middle-income households may face renewed financial challenges under Prime Minister Andy Burnham’s administration, as experts suggest the possibility of tax increases targeting savings, capital gains, and investments.
Labour has consistently ruled out raising income tax, National Insurance, or VAT. However, other fiscal measures may be introduced to augment Treasury revenues. Michele Tieghi, a financial expert at the investment guidance platform PsyFi Money, emphasised that changes in tax policy are a distinct possibility. He commented: “It’s definitely plausible that tax rises could be announced in the 2026 Autumn Budget in October, with some having a higher probability than others.”
One approach to increasing revenue without breaching Labour’s key commitments might be to allow inflation and wage growth to push taxpayers into higher bands - a process known as fiscal drag. Mr Tieghi explained: “Freezing thresholds, personal allowances, and reducing allowances for higher earners will allow fiscal drag to become a major source of extra revenue.”
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Tax hikes are already scheduled. From April 2027, the tax rate on taxable interest earnings will rise by two percentage points across all bands. Chancellor John Healey may also consider adjustments to other levies affecting savings.
Mr Tieghi noted: “There has been discussion about taxing savings, though this would likely be unpopular and not a priority for the Labour Government. Potential measures include reducing the personal savings allowance, lowering the starting rates for savings, and increasing taxation on investment income - measures that would most affect pensioners, middle-income families, and cautious savers.”
Currently, the personal savings allowance exempts a portion of interest earned from tax, varying by income bracket.
The expert also pointed to capital gains tax and inheritance tax as more probable targets for increases. He said: “Capital gains and inheritance tax changes remain much more likely, having been frequently discussed by experts as straightforward ways to raise additional revenue.”
Possible capital gains tax changes could include reducing exemptions, raising rates, restricting Business Asset Disposal Relief, and modifying entrepreneur reliefs.
Significant inheritance tax changes are slated for 2027, with rules shifting so that unused pension funds will become subject to the 40% tax charge. Currently, estates benefit from substantial tax-free thresholds: individuals can pass on up to £325,000 tax-free, with an additional £175,000 allowance when passing a main residence to a direct descendant. These unused allowances can be transferred between spouses or civil partners, potentially allowing up to £1 million in total allowances per estate.
Mr Tieghi warned that the Burnham Government could further tighten inheritance tax regulations by adjusting trust rules, altering gifting exemptions, reducing reliefs, and increasing compliance measures.
A Treasury spokesperson stated: “The Chancellor is fully focused on his priorities, to boost business, help with the cost of living and support people in every postcode. As has always been the case, the Chancellor will set out decisions at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”