The chancellor, Rachel Reeves, is exploring ways to raise billions of pounds extra in taxes at the budget.

Labour outlined about £9bn worth of tax-raising measures in its manifesto, but also committed not to increase taxes on “working people” using the three biggest revenue-raisers for the Treasury: income tax, national insurance and VAT. The party also committed to not increasing corporation tax on businesses.

However, Reeves has said she was keen to avoid a “return to austerity” under the new government, and told cabinet colleagues that meeting this pledge could force her to raise more in taxes than originally planned.

The chancellor has warned that a £22bn “black hole” in the public finances – which Labour claims it inherited from the Conservatives – will persist over the next five years, forcing the new government to take “difficult decisions” on spending, welfare and tax.

Reeves is aiming to make £40bn worth of tax rises and spending cuts a year to overcome the shortfall, in order to meet her “golden rule” of balancing day-to-day spending with tax receipts. This would help to avoid a fresh round of cuts to departmental budgets.

Here are the tax raising options under consideration:

Capital gains tax

Reeves has been exploring a rise in capital gains tax (CGT) since before the general election, as revealed by the Guardian. About £15bn a year is raised, paid by about 350,000 people each year – and the majority coming from a small subset of super-rich individuals.

CGT is levied on the increase in the value of an asset in the period between its purchase and disposal. Various rates apply on the sale of different assets, including residential property, shares and carried interest earned by private equity fund managers.

At present, the top rate of income tax is 45%, but most types of capital gain are taxed at 20% and can be as low as 10%. The chancellor could raise up to £14bn by bringing the rates into line with income tax bands, but she could opt for a narrower set of changes to raise about £8bn.

Non-dom tax reforms

Labour’s manifesto included measures to raise £5.2bn in extra revenue from closing further loopholes in the non-dom tax regime, building on changes made by Jeremy Hunt in the March 2024 budget.

The Office for Budget Responsibility (OBR) forecast that scrapping the tax break for wealthy foreigners could raise about £3.2bn a year, but warned this was a “highly uncertain” figure as the super-rich could either leave Britain or find ways to avoid the tax.

It emerged last month that Treasury officials feared Labour’s additional measures could end up losing the exchequer £1bn, rather than bringing in more money. It is thought the chancellor is reconsidering her plans.

Inheritance tax

About £8bn a year is raised by inheritance tax, with the levy typically paid on the estates of about 5% of annual deaths – the wealthiest estates in Britain. The chancellor could close several loopholes. The Resolution Foundation thinktank has suggested bringing pension pots into scope, and ending business and agricultural reliefs, to raise up to £2bn.

Reeves could go further by ending the complicated residence nil-band rate, introduced in 2017, which provides an extra tax-free allowance if a main residence is left to a direct descendent. This could raise a further £2bn.

Employer national insurance contributions

There are two options for the chancellor. First, levying employer national insurance contributions (NICs) on pensions contributions. The Resolution Foundation estimates this could raise £18bn, but because it would also hit public-sector employers, they would need to be reimbursed – reducing the net gain to about £12bn.

The second would be a straightforward increase in the rate of NICs paid by employers. Employers pay NICs for most workers earning more than £9,100 a year, paying the equivalent of 13.8% on earnings above the threshold.

HM Revenue and Customs estimates a one percentage point increase in the rate would bring in almost £9bn by 2027-28.

The chancellor has strongly hinted she could do this. However, she has faced criticism that this could break Labour’s manifesto pledge, with warnings workers would ultimately pay the price through lower wages. Reeves could, though, argue that businesses, not “working people”, would shoulder the cost.

‘Sin’ taxes

Ministers are understood to be considering a tax increase of up to £3bn on the gambling sector, after a report by the centre-left IPPR thinktank suggested the move in September among key recommendations for tackling Britain’s health challenges.

Fuel duty

Successive Conservative chancellors have frozen fuel duty since 2011, handing a generous tax break to motorists, while depriving the exchequer of a total of about £100bn in foregone revenue. Rishi Sunak also launched a temporary 5p fuel duty cut in 2022 to address the cost of living crisis, which has been extended twice and is due to expire in March next year.

The default government position is that the temporary cut ends and fuel duty will rise in line with retail price inflation next spring. For this reason, allowing a rise wouldn’t help to plug the chancellor’s forecast budget deficit – because the OBR already assumes the tax rate will go back up automatically.

Reeves is under heavy pressure to freeze the rate from motoring groups. But doing so would come at a serious cost. Cancelling the scheduled rises would be worth £4.8bn, according to the Resolution Foundation.

What Reeves won’t do

Although Labour has complained of a dire economic inheritance from the Conservatives, there is one measure in particular Reeves will be quietly thankful for.

Her legacy included planning tax rises between 2025 and 2027 that add up to £24bn a year through the freezing of income tax and national insurance thresholds. Known as “fiscal drag”, the thresholds would normally increase in line with inflation in-year. Because they don’t, there is a windfall for the exchequer.

Labour’s manifesto pledge not to increase income tax, national insurance and VAT makes it politically challenging for the chancellor to touch the three biggest revenue-raising taxes for the exchequer.

The previous government’s 4p cut in national insurance cost the exchequer about £20bn, which Labour has not said it would reverse.

Increasing income tax by 1p would raise almost £7.5bn on the basic rate in 2027-28, while for the higher and additional rates it would raise £2bn and £210m.