May Government Faces Backlash Over New Tax Proposal

growing public concern over the cost of living, Chancellor Rachel Reeves of the UK’s Labour government faced significant backlash after unveiling a controversial new tax proposal during the emergency budget review. The plan, aimed at raising an estimated £7 billion by 2030, includes extending freezes on income tax thresholds and intensifying council tax increases—moves critics say disproportionately impact middle-income households.

📉 What the Proposal Includes

1. Freeze on Income Tax Thresholds
   The Chancellor proposed an extension of the current freeze on personal allowance and higher-rate thresholds, set to bring an additional 1 million taxpayers into higher tax brackets over the next few years thetimes.co.uk.
2. Council Tax Increase
   A new mandate would require all English councils to raise council tax by 5% annually until 2029, with projected gains funding local services. However, this could significantly raise household bills, drawing comparisons to the steepest hikes seen in the early 2000s news.com.au+15pulse.ng+15toronto.citynews.ca+15thetimes.co.uk+1thetimes.co.uk+1.
3. ISA and Pension Tax Reforms
   The plan includes trimming tax benefits on Individual Savings Accounts and standardizing pension relief at 30%, which could generate around £3 billion annually but risk political cost thetimes.co.uk.
4. Capital Gains and Inheritance Tax Adjustments
   Additional proposals include increasing capital gains tax and closing property relief loopholes—intended to unlock over £3 billion but attracting criticism for potential chilling effects on investment bloomberg.com+15thetimes.co.uk+15reuters.com+15.
5. No Wealth Tax… Yet
   Some Labour MPs had pushed for a wealth tax (targeting those with assets over £10 million), but Reeves ruled it out, citing risk to investment—a decision that drew mixed reactions within the party reddit.comthetimes.co.uk.

🔥 Public & Political Backlash

• Institute for Fiscal Studies warning: The IFS cautioned that Reeves is just a “gnat’s whisker” from needing to raise more taxes if economic conditions worsen—even after planned measures. Growth unexpectedly contracted in April, increasing the risk of further fiscal tightening theguardian.com+1thetimes.co.uk+1.
• Strain on households: Middle-income families face the double impact of frozen thresholds and steep council tax hikes, squeezing budgets already stretched by inflation and rising living costs thetimes.co.uk.
• Opposition and internal dissent: Political rivals—and even some within Labour, including Deputy Leader Angela Rayner—warned against overburdening ordinary citizens, urging a shift toward wealth redistribution and taxation on the affluent thetimes.co.uk+1ft.com+1.

⚖️ The Balancing Act: Borrowing vs. Taxing

Reeves defended the proposals as necessary to fund infrastructure, health, and social reforms, arguing they’re an alternative to deeper borrowing. The spending review commits £100 billion toward the NHS, defence, and local services—funded through borrowing unless counterbalanced by tax revenues, including the council tax surge thetimes.co.uk+1theguardian.com+1.

Yet the IFS warns the fiscal margin is razor-thin: any economic dip or revenue shortfall could force further tax hikes in the autumn budget theguardian.com+1thetimes.co.uk+1. As Reeves admitted, while no autumn tax rise is planned, vigilance is required to maintain “ironclad” fiscal rules thetimes.co.uk.

🔮 What Happens Next?

1. Autumn Budget Reaction
   Policymakers and analysts will scrutinize macroeconomic data closely to assess whether further tax measures are necessary to bridge fiscal gaps.
2. Local Council Response
   Mandatory council tax hikes could lead to public protests or pushback from cash-strapped local authorities, creating friction between central and local government.
3. Labour Party Debate
   Internal rifts—highlighted by Rayner’s leaked memo advocating more progressive taxes—suggest ongoing tensions over whether to rely on direct taxes or spending restraint reddit.com+5heraldsun.com.au+5inc.com+5thetimes.co.uk+1ft.com+1.
4. Potential Legislation
   Parliament might see new amendments on ISA relief or pension allowances, while capital gains and inheritance changes could spark debates in both Houses.