In its 2024 manifesto, the Labour Government pledged to not increase taxes on working people including the rate of VAT. As a result, attention is increasingly turning to more targeted indirect tax measures. Rather than broad-based tax rises, the Chancellor has scope to use VAT reliefs, compliance reforms and sector-specific interventions to support wider policy objectives while continuing to protect tax revenues.
The Labour government has also pledged to close the tax gap by recruiting up to 5,000 additional HMRC compliance officers, investing in technology and strengthening anti-avoidance measures, with the aim of raising around £5 billion a year in additional tax revenues by the end of the Parliamentary session.
Given this context, Mark Ellis, VAT specialist and Partner, explores what indirect taxes could feature in the Autumn Budget 2026. Measures could support housing, education and life sciences, as well as closing compliance gaps and raising additional revenue without increasing the headline rate of VAT.
Tax giveaways
Zero rating of land intended for social housing
One of the strongest candidates is the introduction of a VAT zero rate for land intended for social housing. This has been the subject of formal consultation and aligns closely with the government’s housing agenda. Both the Starmer and Burnham administrations repeatedly emphasised the need to increase housing delivery, expand social housing stock and improve affordability. A targeted VAT relief for land acquired for qualifying social housing developments would support those objectives directly by reducing development costs and potentially increasing the viability of new schemes.
Based on the evidence currently available, we estimate that such a measure could reduce Exchequer receipts by between £300 million and £800 million annually. This is an author estimate and not a Treasury costing.
The commercial impact could be significant. Housing associations and registered providers frequently incur substantial irrecoverable VAT costs during development projects. Removing VAT from eligible land transactions would reduce project costs and allow scarce funding to be directed towards additional housing delivery.
The consultation also highlighted concerns regarding the interaction with the long-standing “golden brick” rules. Under the current system, developers often rely on the golden brick stage before a dwelling can be sold at the zero rate. By that point, a significant proportion of construction costs may already have been incurred.
While abolition of the golden brick treatment has not been proposed directly, any future simplification in this area could improve cash flow for housing providers, reduce legal complexity and lower compliance costs. That would sit comfortably alongside the government’s broader objective of accelerating housing delivery.
Relief for clinical trials and compassionate use medicines
The government continues to position life sciences as a strategic growth sector. Given this, targeted VAT reforms affecting medicines and medical research are a realistic possibility.
The strongest case relates to compassionate-use medicines. These treatments are often supplied free of charge to patients with serious conditions before full licensing or commercial availability. Current VAT rules can produce outcomes that many stakeholders consider disproportionate to the public health objectives. For example, a supplier administering a £50,000 treatment free of charge to a terminal patient would incur £12,000 of VAT. Providing relief would improve consistency and fairness without representing a conventional tax giveaway.
A related area concerns clinical trials. The UK competes internationally for life sciences investment, and VAT treatment can influence the attractiveness of conducting research activities here. Clarifying or improving the VAT position for clinical trial arrangements could strengthen the UK’s competitive position and support investment in medical innovation.
The primary rationale for either reform is maintaining fairness, protecting the UK’s life sciences sector and supporting international competitiveness.
Extending VAT refunds to further education colleges
A less publicised but potentially important reform would be extending VAT refund arrangements to further education colleges. At present, section 33 of the Value Added Tax Act 1994 allows certain local authority-affiliated bodies and public sector organisations to obtain VAT refunds that would otherwise represent a real cost. Further education colleges remain outside those arrangements and therefore suffer significant irrecoverable VAT costs.
The issue has received attention in both the House of Commons and House of Lords. Research from the London School of Economics estimated the cost to the sector at approximately £200 million per year.
The policy case is straightforward. The government has consistently emphasised technical education, vocational training and workforce skills. Colleges play a central role in delivering qualifications in construction, engineering, digital technology and healthcare, all areas where skills shortages remain a major concern.
Extending VAT refund rights would place colleges on a more consistent footing with comparable publicly funded educational institutions. The estimated fiscal cost is relatively modest when viewed against wider public spending, while the additional resources retained by colleges could support investment in facilities, teaching capacity and student outcomes. The proposal would also be consistent with broader efforts to reduce the number of young people who are not in education, employment or training.
Tax grabs
Insurance Premium Tax increases
Insurance Premium Tax (IPT) remains an attractive revenue-raising option because relatively small rate increases can generate substantial receipts.
The standard IPT rate currently stands at 12%, having increased gradually from 5% since its introduction in 1995. Previous governments have repeatedly used IPT increases to raise revenue without altering headline VAT rates.
We consider an increase in the standard rate to either 13% or 14% a realistic Budget option. Based on current IPT receipts of £9 billion annually, our estimate is that a 1% increase could raise approximately £600 million to £900 million annually.
Any increase would affect a wide range of insurance products purchased by both businesses and consumers. As a result, the measure would generate significant revenue while remaining administratively straightforward to implement. Changes to the higher IPT rate appear less likely. That rate has remained unchanged since 2011 and applies to a narrower range of products.
If introduced, transitional provisions would be expected. Previous increases have been accompanied by detailed implementation guidance, and similar issues have recently been discussed within the Insurance Liaison Group operating through the Joint VAT Consultative Committee.
While this is a viable revenue raiser, the industry has warned that higher IPT contributes to under insurance, and that the impact would likely fall more heavily on low-income households and small-medium enterprises.
Online marketplace liability for VAT
The government’s recently concluded consultation on online marketplace liability would shift responsibility for collecting and accounting for VAT from individual sellers to online marketplace operators. Similar models already operate in several jurisdictions and are generally intended to improve compliance and reduce revenue loss.
The consultation principally addresses two areas of non-compliance. First, non-compliance by overseas sellers. Secondly, UK businesses that spread sales across multiple marketplaces and channels to remain below the VAT registration threshold.
The consultation specifically notes that some businesses may disaggregate activities to avoid registration obligations. Bringing marketplace operators into the collection process could make this behaviour significantly more difficult.
Online marketplaces continue to represent an increasing share of consumer spending. According to Office for National Statistics data cited within the consultation, internet sales increased from approximately 5% of total retail sales in 2008 to 28% in 2025. As a result, the effectiveness of VAT collection through online platforms has become increasingly important. Transferring VAT collection obligations to major platforms could materially reduce opportunities for non-compliance and improve visibility over transactions.
We estimate that the measure could generate between £500 million and £1.2 billion annually. This is an author estimate based on the scale of marketplace activity and the compliance risks identified in the consultation.
Increased compliance measures for Plastic Packaging Tax
Plastic Packaging Tax (PPT) remains a key area where environmental policy and revenue protection increasingly overlap. Measures announced at Budget 2025 (effective 1 April 2027) will require mandatory certification for chemically recycled plastic to qualify for the 30% recycled plastic threshold for PPT exemption. Pre-consumer waste will also no longer qualify as recycled content for PPT exemption purposes.
The government has also recently closed its consultation on extending mandatory certification requirements to mechanically recycled plastic, to further combat non-compliance and incentivise the use of recycled plastic.
The proposals protect tax revenues by strengthening compliance controls while also supporting environmental objectives through increased confidence in recycled-content claims. For affected manufacturers, importers and packaging businesses, the practical impact is likely to be felt less through tax rate changes and more through enhanced governance, documentation and assurance requirements.
Conclusion
With headline VAT rates effectively off the table, the government’s focus is likely to remain on targeted reliefs that support housing, education and economic growth, alongside compliance measures designed to protect revenue and address areas of perceived underpayment. Businesses should monitor developments closely. Even relatively targeted reforms can have significant implications for pricing, cash flow, systems, contracts and compliance obligations.
