Households could be hit with all sorts of new tax grabs come November 26, after Chancellor Rachel Reeves took the extraordinary step of issuing a special warning that tax hikes are on the cards this week in a bid to prepare the country for the upcoming Autumn Budget.

In her pre budget speech, Ms Reeves refused to rule out manifesto breaking tax rises, which means it’s possible that income tax or National Insurance could be increased when the government sets out its spending plans for the coming year.

Now, financial experts at AJ Bell have been analysing what it could mean for our finances, and which taxes could be increased, and by how much.

One option on the table for the government is a ‘two up, two down’ tax. This would involve increasing Income Tax while cutting National Insurance at the same time.

This would balance out for working people, who would see one tax rise by two percentage points while the other drops by the same amount. But, according to the experts, this would have steep downsides for pensioners.

Laura Suter, Director of Personal Finance at AJ Bell, explains: “The move would be cost neutral for employees, as the hike on one would be cancelled out by the reduction on another. So, you’d end up paying more income tax but less National Insurance and your take-home pay would remain the same.

“The same would be true for self-employed people, if their rate of National Insurance was also cut. Self-employed people pay a lower rate of National Insurance, so it would see their rate cut from 6% down to 4%. Of course, the Chancellor could choose not to cut this rate, which means self-employed people would see an overall increase in the tax they pay.”

But she added: “One group that would definitely be hit by this proposed move is pensioners. Once you reach state pension age, you don’t have to pay National Insurance, so it means any pensioners who are paying basic-rate income tax would see an increase in their income tax bill but it wouldn’t be offset by the cut to National Insurance.

“Someone with a taxable retirement income of £35,000 would face a tax hike of almost £450, while a pensioner with an income of £65,000 would be stung with a tax increase of over £1,000.

“While hitting pensioners in the pocket will clearly be unpopular – particularly in the wake of the Winter Fuel Payment fiasco – it may be viewed as the least bad option to raise a chunk of the tens of billions of pounds the chancellor needs to balance the books.”
In an unusual speech just three weeks out from the major fiscal statement, the Chancellor on Tuesday refused to commit to Labour’s manifesto promises not to raise income tax, national insurance or VAT, fuelling speculation.

The Budget will focus on cutting NHS waiting lists, and addressing the cost-of-living crisis, the Chancellor said, as well as reducing the burden of interest on government debt.

She suggested she would neither cut her major spending plans, nor reach for the lever of more borrowing to meet her commitments, further hinting that tax rises are needed to sustain the public finances.