Rachel Reeves is reportedly considering a tax raid on landlords by imposing National Insurance on rental income as she looks to plug a £50billion spending hole.
Treasury officials are said to be looking at proposals to levy £2billion from property earnings as they scramble for revenue-raisers ahead of the Budget this autumn.
There is widespread expectation that the Chancellor will oversee fresh tax hikes at her upcoming fiscal statement amid warnings about the state of the public finances.
The Chancellor has repeatedly vowed not to increase VAT, income tax or National Insurance on ‘working people’, forcing her to look at other options.
According to The Times, allies of Ms Reeves believe that applying National Insurance to rental income would allow her to get around her ‘red lines’ on taxes.
This is because it would involve widening the earnings which National Insurance appies to, rather than raising the rate.
Labour insiders told the newspaper that property income was ‘a significant potential extra source of funds’ and landlords were seen as a way of targeting ‘unearned revenue’.
But critics of a tax raid on landlords will warn that such a move would merely increase rents for tenants, or push landlords to sell up and therefore shrink the lettings market.
Employee National Insurance contributions (NICs) on other earnings stand at 8 per cent, but drop to 2 per cent above a £50,270 threshold.
Official figures show there was £27billion of net property income in 2022-23, the latest year for which statistics are available.
An extra levy of 8 per cent would have generated £2.18billion.
A plan to impose National Insurance on rental income was proposed last September in the run-up to Ms Reeves’ first Budget by the Resolution Foundation.
The think-tank was previously headed up by Torsten Bell, who is now a Labour MP and Treasury minister who was recently promoted to help the Chancellor prepare for her next Budget.
Supporters of the plan will argue, if landlords are forced to sell up, it would release stock into the housing market and allow more renters to purchase a home.
They will also point to measures in Labour’s Renters’ Rights Bill, which is seeking to place a limit on landlords hiking rent for existing tenants.
Ms Reeves is estimated to be facing a £51billion black hole in the public finances ahead of her Budget.
In a recent report, the National Institute of Economic and Social Research found that the ‘wafer thin’ headroom of £9.9billion Ms Reeves left herself last year has been wiped out, and there is now a budget deficit of £41.2billion.
To fill the hole and maintain the buffer, the Chancellor will have to find £51billion annually in higher taxes or lower spending by 2029/30, the think tank said.
Ms Reeves is reported to be considering a swathe of new property levies ahead of her autumn Budget.
This includes the possible removal of the capital gains tax exemption for the sale of higher-value homes, as well as a replacing stamp duty with an annual charge.
Treasury officials are also said to be eyeing an inheritance tax raid, while economists have also predicted there could be further ‘stealth’ and ‘sin’ taxes.
A Government minister this morning refused to be drawn on reports the Treasury is considering a tax increase on landlords.
Stephen Morgan, an education minister, told Times Radio and Sky News he was unable to comment on speculation.
Mr Morgan instead said he wanted the Budget to be rooted in ‘Labour values’.
He told Times Radio: ‘Obviously taxation policies are a matter for the Chancellor of the Exchequer, and she will set out more detail in the budget later this year.
‘I want to make sure that our Budget is based on our Labour values, and that is what Rachel Reeves will deliver.
‘It’s not for me to comment on speculation. Our focus is on driving growth in the economy and delivering for working people up and down the country.’
Speaking later to Sky News, Mr Morgan said: ‘We’re focused on growing the economy. Fixing the foundations of the country, restoring public service and that decade of national renewal.
‘I’m afraid you will have to wait until the Budget later this year.’
A Treasury spokesperson said the best way to strengthen the public finances was by growing the economy, adding: ‘Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8billion and cut borrowing by £3.4billion.
‘We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurance, or VAT.’
