Chancellor John Healey's first budget arrives constrained by Labour's manifesto pledge not to raise income tax, national insurance, or VAT — the three levies that together account for the vast majority of government revenue. The result is a fiscal debate that has migrated to the edges: inheritance tax, capital gains tax, a new mansion surcharge, and council tax rebalancing. None of these are small-bore issues, but the structural story is about fiscal drag doing most of the heavy lifting. Inheritance tax receipts hit £8.5bn in 2025-26, up from £8.2bn the year before, and the OBR projects £14.5bn by 2030-31. Conservative leader Kemi Badenoch frames this as a middle-class squeeze; the numbers are more nuanced. Only about 5% of estates — roughly 30,000 per year — actually pay IHT. A couple can leave up to £1m tax-free to children or grandchildren. The average effective rate across all IHT-paying estates was 13% in 2023-24, not the headline 40%. But frozen thresholds and the decision to pull unused defined-contribution pensions into IHT calculations from April 2027 will widen the net: an estimated 10,500 estates will face IHT for the first time, and 38,500 will see larger bills, with the average increase projected at £34,000. Capital gains tax tells a sharper story about threshold manipulation. Revenue surged nearly 80% in a single year to £24.3bn in 2025-26 — driven substantially by Jeremy Hunt's decision to slash the annual tax-free allowance from £12,300 to £3,000 over two years. The number of CGT payers hit an all-time high of 584,000. Yet the tax remains heavily concentrated: nearly half of all CGT revenue comes from individuals with gains over £5m, representing less than 1% of payers. Rachel Reeves raised rates in her autumn 2024 budget to 18% (basic) and 24% (higher), and Labour figures are pushing to align CGT rates with income tax — a move Healey has reportedly rejected for now. The new high-value council tax surcharge — the so-called mansion tax — arrives in April 2028 for properties valued above £2m. Annual surcharges range from £2,500 to £7,500 on top of existing council tax, affecting an estimated 138,000 homes, overwhelmingly in London and the south-east. The OBR estimates £400m in annual revenue. A deferral mechanism would protect households earning £35,000 or less. Healey reportedly considered and rejected extending the surcharge to properties worth £1.5m, which would have doubled the number of affected homes. The most immediately felt change may be council tax itself. Six councils — five in London plus Windsor and Maidenhead — have been permitted to raise bills by unlimited amounts over the next two years. Hammersmith and Fulham has warned of a 150% increase, taking a typical band D bill from £1,009 to £2,522. These councils sit at the bottom of England's council tax league: Wandsworth charges £1,028 for band D while neighbouring Lambeth charges £2,047. The rebalancing follows the Fair Funding formula, which redirects central government grants toward higher-deprivation areas, forcing historically subsidised councils to close budget gaps through local taxation. The through-line across all five tax debates is the same mechanism: frozen thresholds and reduced allowances functioning as stealth tax increases. This avoids the political cost of raising headline rates while achieving similar revenue effects. It is regressive in practice because it relies on asset-price inflation — primarily house prices — to push more households past fixed lines. The question is not whether the government is raising taxes. It is whether the method of raising them is honest.
