26th August 2026
The countdown to the Budget has already begun, and Westminster's annual guessing game over taxation is becoming increasingly intense. By 28 October we will know what Chancellor John Healey has decided, but until then there is plenty of room for speculation.
There is one important constraint. Prime Minister Andy Burnham has reiterated that the Government intends to honour Labour's manifesto commitments not to increase income tax, VAT or employee National Insurance. At the same time, he has acknowledged that the country's financial position is difficult and has said that the Government must be realistic about taxation.
That leaves the Chancellor with a rather interesting problem. If the Government needs more revenue but doesn't want to increase the three big taxes that affect the majority of working people, it has to look elsewhere.
And that is where the possibility of taxing particular sectors, assets and forms of wealth more heavily becomes interesting.
I would not pretend to know what will be announced. But we can make a reasonably informed assessment of where the opportunities lie.
Banks are an obvious target
The banking sector is perhaps the most politically attractive target.
Britain's major banks have been extremely profitable. The TUC calculates that Barclays, HSBC, Lloyds and NatWest made a combined £29 billion profit in the first half of 2026, following £45.7 billion of profits in 2025.
The existing system already recognises that banks are different from ordinary companies. Banking companies pay the normal 25% corporation tax rate, together with a 3% banking surcharge on profits above £100 million, as well as the bank levy. NatWest's latest accounts show that its first-half tax charge included £92 million of banking surcharge.
That means the Chancellor would not have to invent an entirely new tax. He could simply increase the existing surcharge.
And this is precisely what the TUC is demanding, arguing that the surcharge could be increased to raise as much as £60 billion over four years. That figure should be treated as an advocacy estimate rather than a guaranteed Treasury receipt, but it demonstrates the scale of the potential prize.
The banks, predictably, are warning against it. Jamie Dimon of JPMorgan has reportedly warned the Chancellor that further taxation could damage Britain's competitiveness and potentially encourage jobs and investment to move elsewhere.
That argument cannot simply be dismissed. Banks can move some activities internationally, and governments have to consider the consequences of making Britain less attractive for financial services.
But there is also a counterargument. Banking is one of Britain's most important industries, but it is also an industry that benefits enormously from the infrastructure of the state: the legal system, regulation, central banking, deposit protection and ultimately the financial stability provided by the Bank of England.
A modest increase in the surcharge could therefore be politically easier than increasing taxes on millions of households.
My assessment: a higher bank surcharge looks quite plausible.
Energy companies are another obvious possibility — but there is a complication
The energy sector presents a similar political opportunity.
Oil and gas companies have already been subject to the Energy Profits Levy, which currently imposes a 38% additional tax on profits on top of the 40% permanent rate applicable to the sector.
But the Government has already been preparing the next stage.
The Oil and Gas Revenue Levy is designed to replace the Energy Profits Levy when it ends, and draft legislation published this year sets a 35% levy on revenues above specified thresholds. For 2026-27 the oil threshold is $90 a barrel.
That is fascinating in the present circumstances because oil has been hovering around and above that level.
The Government therefore already has a mechanism for capturing unusually high energy revenues.
It could nevertheless decide that the present circumstances justify bringing forward changes or increasing the burden.
But there is a danger here. The Government wants investment in Britain's North Sea energy sector, and excessively high taxation can discourage companies from investing in fields that may have relatively short remaining lifetimes.
So energy companies are an obvious target, but the Treasury has to balance raising revenue today against reducing investment tomorrow.
My assessment: changes affecting energy companies are possible, but I think the Government will be more cautious here than the headlines suggest.
Capital gains tax looks much more interesting
If I were trying to predict where a substantial tax increase might come from without breaking the Government's promise on income tax, VAT and employee National Insurance, Capital Gains Tax would be high on my list.
There has been continuing speculation about bringing capital gains rates closer to income tax rates, restricting exemptions and altering the treatment of particular assets.
This is attractive to a Chancellor because capital gains are concentrated among people with substantial assets rather than being spread evenly across the workforce.
There is, however, a problem.
Capital gains taxation can change behaviour. People can delay selling assets, reorganise their affairs or structure transactions differently. That means the Treasury cannot assume that every pound of additional tax suggested on paper will actually arrive.
Nevertheless, if the Government wants to demonstrate that it is raising money from wealth rather than ordinary wages, CGT offers one of the clearest opportunities.
My assessment: changes to CGT are quite plausible.
Property taxation could become the bigger story
Property is potentially an even larger source of revenue.
There is already speculation about replacing or restructuring existing property taxes, including council tax and stamp duty, and about introducing some form of additional charge on expensive properties.
A mansion tax is particularly tempting politically because it allows the Government to say that it is asking more from those owning very valuable property rather than increasing taxes on ordinary homeowners.
But there is a huge complication.
The value of a house does not necessarily tell us anything about the owner's income.
Someone who bought a house decades ago for £100,000 might now live in a property worth £2 million without having anything approaching the income normally associated with a £2 million asset.
That makes property taxation politically and practically difficult.
A more fundamental reform, such as a proportional property tax or land-value tax, could eventually make sense economically, but I would be surprised if the Government attempted a wholesale transformation in this Budget.
My assessment: a targeted property tax or mansion-tax-style measure is more likely than a complete overhaul.
Pensions are another enormous tax territory
Pensions are an obvious source of temptation because the Government already spends enormous sums providing tax relief on pension contributions.
The difficulty is that pensions are supposed to encourage people to save for their retirement. If taxation becomes too aggressive, people may simply save less or move towards other investments. People in high paying jobs get a huge tax bung that has gotten bigger every year and so perhsp the time has come to call a halt to higher rate saving on pension constributions.
There has already been speculation about further changes following previous reforms, including the treatment of pension assets for inheritance-tax purposes.
This is an area where the Government could raise money without technically increasing income tax, VAT or employee National Insurance.
But it would be politically sensitive because millions of people have been encouraged to build pension savings on the assumption that the rules would remain reasonably stable. Changes could sill be made while protecting people on low pay who make pension contributions.
My assessment: further pension-tax changes are possible, but I suspect the Chancellor will tread carefully.
Inheritance tax is another opportunity
Inheritance tax is particularly interesting because relatively few estates actually pay it, yet it can generate considerable political controversy.
The Government could alter thresholds, reliefs or exemptions rather than increasing the headline rate.
That would allow it to raise money while arguing that the majority of estates would remain unaffected.
The difficulty is that inheritance-tax planning is extremely sophisticated. If the rules become too complicated or punitive, people change how they hold assets.
Nevertheless, it is one of the areas where the Treasury has room to manoeuvre.
My assessment: changes to reliefs and thresholds are more likely than a dramatic increase in the headline rate.
Then there are the taxes nobody notices until they arrive
This is perhaps where I would watch most carefully.
Governments have an enormous number of relatively small taxes, duties, charges and thresholds available to them.
Fuel duty can be adjusted.
Vehicle taxation can be changed.
Air passenger duty can be altered.
Environmental taxes can be expanded.
Tax allowances can be reduced.
Reliefs can be tightened.
Thresholds can be frozen.
And these measures can individually appear relatively harmless while collectively raising billions.
Indeed, the latest HMRC figures show how much revenue comes from numerous different sources. Business taxes generated £3.7 billion more in the first four months of this financial year than in the equivalent period a year earlier, while stamp taxes were 8% higher.
The danger for taxpayers is that the most significant Budget tax increase may not be the one with the biggest headline.
It may be a collection of smaller changes.
Frozen thresholds are particularly powerful
Fiscal drag as it is now known hits everyone. This is one of the quietest ways for governments to raise money.
If wages rise but income-tax thresholds remain fixed, more people gradually move into higher tax bands.
The Government does not have to announce an increase in the basic rate of income tax.
The tax system simply takes more money as people's incomes rise.
That is why fiscal drag has become such an important issue.
And it is particularly interesting now because the Government has ruled out increasing income tax rates but has not necessarily ruled out every possible change to the way thresholds operate.
That gives the Treasury considerable room.
What about National Insurance?
This is where I think we need to distinguish between employee National Insurance and taxation of employers.
The Prime Minister has reiterated the commitment not to raise employee National Insurance.
But that doesn't necessarily prevent the Government from examining employer taxation, particularly if it believes businesses can absorb some additional cost.
However, this is dangerous territory.
Employers already complain that employment costs are discouraging recruitment. We have discussed recently the possibility that rising employment costs are contributing to weaker hiring.
If the Government increases the cost of employing people while simultaneously worrying about weak job creation, it could end up making its own problem worse.
So I would be surprised if employer National Insurance were the main source of additional revenue.
Could the Government tax supermarkets or other sectors?
It could.
There have been periodic calls for additional taxes on supermarkets, food producers, pharmaceutical companies and other sectors that have experienced unusually high profits.
But I think the Government will be wary of creating a general principle that any industry making a large profit becomes a potential windfall-tax target.
Businesses need confidence that the tax rules will not suddenly change because their profits have increased.
The more interesting approach may therefore be to target sectors where profits are clearly associated with temporary external circumstances.
Banks benefiting from unusual interest-rate conditions are one example.
Energy companies benefiting from exceptional commodity prices are another.
The really interesting possibility is tax reform rather than tax rises
This is where I think the Budget could surprise us.
The Government doesn't necessarily have to say:
"We are increasing tax X from 20% to 25%."
It could instead remove some tax reliefs, close loopholes, reform allowances and change the treatment of particular assets.
That could raise substantial amounts of money while allowing the Government to argue that it is making the tax system fairer rather than simply increasing taxes.
And there is plenty of political room for that argument.
My Budget betting board
If I were putting my own predictions down today, rather than simply repeating newspaper speculation, I would put a higher banking surcharge near the top of the list. The profits are substantial, the existing mechanism already exists and the political argument for asking banks to contribute more is relatively easy to make. The Treasury would nevertheless have to consider the competitiveness argument very carefully.
I would also expect some form of additional taxation on wealth and capital, probably through CGT, property or inheritance-tax changes rather than a straightforward increase in income tax.
I would expect further tinkering with tax reliefs and allowances, because these can raise meaningful sums without producing quite the same political reaction as headline rate increases.
I would keep a close eye on energy taxation, particularly because the existing regime is already designed to capture exceptional oil and gas revenues when prices are high. The Government may decide that the current situation warrants accelerating or modifying that mechanism, although investment concerns make a major raid less attractive.
And I would expect some form of stealth taxation through frozen thresholds, duties or charges to remain part of the Chancellor's toolkit.
What I think is less likely is a straightforward increase in the three big taxes that Labour has promised not to raise — income tax, VAT and employee National Insurance. Breaking those commitments would be politically explosive and would undermine the Government's credibility. Burnham has nevertheless been unusually frank that the financial situation may require difficult decisions.
There is one enormous uncertainty
The Iran conflict makes this Budget particularly difficult to predict.
Energy prices have become much more volatile and the Government is facing additional defence and energy pressures. Burnham has already acknowledged that the war has damaged the Government's financial headroom.
At the same time, the economy isn't collapsing. June GDP grew by 0.3%, second-quarter growth was 0.4%, services activity has strengthened and consumer confidence has improved.
That creates a fascinating situation for the Chancellor.
He doesn't necessarily need a Budget designed to rescue a collapsing economy.
He needs a Budget designed to repair the public finances without damaging an economy that is only just beginning to regain some momentum.
That is a much more difficult balancing act.
My own prediction
If I had to make a prediction nine weeks out, I would expect the October Budget to contain a collection of targeted tax increases rather than one enormous headline tax rise.
Banks look particularly vulnerable.
Wealth and capital are likely to be targeted in some form.
Property taxation remains a possibility.
Pension and inheritance-tax reliefs could be examined.
Energy companies may face additional pressure if high oil and gas prices continue.
And underneath all of this, there may be a series of smaller measures which collectively raise far more money than the headlines suggest.
The Government's greatest difficulty is that it needs money without appearing to break its promises, without discouraging business investment and without further weakening household finances.
That is why I suspect the most important question on 28 October will not be "Which tax rate went up?"
It will be:
"How much more of our money will the Treasury be taking without actually calling it a tax increase?"
And that, in my view, could make the small print of this Budget considerably more important than the Chancellor's big announcement.
Whatever happens we all need to make sure we have an emergency savings pot.
Bill Fernie
Former Inspctor of Taxes