Budget predictions for changes to indirect taxation August 2025
Jonathan Main · Posted on: August 14th 2025 · read
Putting aside Labour Party manifesto pledges not to increase taxes on working people, what can The Chancellor do to plug the fiscal gap caused by slower growth and recent reversals in proposed welfare changes and the winter fuel allowance?
Gambling duties
The Government published a consultation on the harmonization of tax rates applied to remote gambling in April 2025. The consultation closed in late July, and we await the outcome from HM Treasury (“HMT”), which is likely to coincide with the Autumn Budget. In the foreword to the consultation, James Murray, Exchequer Secretary to the Treasury, made the following remarks:
“This government committed in its manifesto to reducing gambling related harms and to working with industry on how to ensure responsible gambling. I therefore share the Department for Culture, Media and Sport’s (DCMS) aim to have a gambling industry that is sustainable, offers jobs and brings social value to the UK.”
In July 2025, The Social Market Foundation (“SMF”) published a report entitled “The Duty to Differentiate - How gambling tax reform can raise revenue for the Government, reduce harm to the public and save British horse racing.” The central argument by the SMF was an increase in the rate of remote gaming duty (RGD) from 21% to 50%, which could raise £1.6bn per year.
An increase to 50% can be viewed in the context of lower rates of taxation on remote gambling in the UK compared to certain other countries and the offshore establishment of operators which provides relief from UK corporation tax on their profits.
Examples of rates in other countries include the Netherlands at 40%, Austria at 54%, France at 55%, and the US with federal taxation at 24% and additional state taxes ranging from 6.75% in Nevada to 50% in Pennsylvania.
Of wider interest, several countries also collect tax on winnings.
Private healthcare
The UK’s departure from the EU allows HMT freedom to change UK VAT exemptions which have their foundation in EU law.
The imposition of VAT on private school fees was achieved by a carve out from the VAT exemption for private school fees for pupils aged 5 - 18. A similarly targeted change could impose VAT on private healthcare providers on the grounds that the state provides free healthcare.
The latest data from the Office for National Statistics shows that private healthcare spending, including health insurance, was £58bn in 23/24. Based on the following publication from HMRC, Official Statistics Structural tax relief statistics, which was last updated on 5 December 2024, the removal of the exemption may raise £1.5bn per year. This estimate reflects the net effect of the VAT exemption, compared to applying the standard rate of VAT and includes:
- The VAT not charged on supplies of health services where the VAT would not be recoverable by the purchaser, less
- The VAT which can be recovered by private providers on related costs such as medical equipment, consumables, drugs, and premises costs.
"As with school fees, there could be unintended consequences. There is already Insurance Premium Tax to pay on health insurance premiums, and those premiums will rise further if the insurance companies must pay VAT which they cannot recover each time they pay for medical care. That may, paradoxically, place more pressure on the NHS."
Environmental taxes
Environmental taxation raises approximately £2.9bn in annual receipts. Environmental taxes are Landfill Tax, Climate Change Levy, Aggregates Levy, and Plastic Packaging Tax. Although raising these taxes would be politically less damaging than changes to income tax or VAT, any changes are unlikely to make a significant difference in overall tax receipts.
For example, Plastic Packaging Tax raised £268m in 23/24 at a rate of £217.85 per tonne, which increased to £223.69 from 1 April 2025. Doubling the 2024 rate could raise a maximum of £268m but would be likely offset by changes made by the packaging industry to reduce the tax burden of virgin plastic packaging.
VAT rate on luxuries
In 1971, rates of Purchase Tax ranged from 10% to 50% with the higher rates imposed on luxury items. Purchase Tax was abolished and replaced with VAT on 1 April 1973. The UK Government imposed a VAT rate of 25% on certain luxury items from 1974 – 1976. If the Government took a similar decision today, the tax raised would of course depend on the range of goods and services caught by the higher rate of VAT.
Broader removal of VAT reliefs and raising the headline rate of VAT
There are a wide range of VAT reliefs which have remained largely unchanged since the introduction of VAT in 1973. In terms of financial relief for the consumer, two of the most notable are the sale of food, including cold takeaway meals and the sale of children’s clothes. If a reduced rate of 5% VAT were applied in both cases, this may raise over £6bn per year.
Annual UK VAT receipts in 23/24 were £168bn. If The Chancellor raised the headline rate of VAT to 21%, this may raise additional revenue of over £8bn per year.
The above changes may deal with the hole in Government finances, but the political fallout may be unmanageable, since the burden of VAT tends to fall disproportionately on the less well off. The impact on UK businesses managing the change would also be damaging.
