The run-up to any Budget inevitably brings with it a flurry of speculation and selective leaks. Often these are nothing more than flag-flying exercises so policy ideas can be floated to test the reaction of the press and public before any real decision has been taken. It seems this year is no different. What matters, however, is separating the noise from the reality: what the Chancellor can do, what she might do, and what she should do.

Income tax remains the government’s single largest source of revenue, accounting for around 27% of receipts and 11% of national income. It is the most obvious lever for any chancellor looking to raise funds. But the Labour Party’s manifesto pledged not to increase taxes on working people and that commitment already looks fragile. The rise in employers’ National Insurance contributions earlier this year was framed as something different, but it represented a broken promise by stealth.

There have also been rumours of National Insurance being extended to rental income – a puzzling idea given that NIC has historically been a tax on earnings rather than investment returns. A more coherent approach might be to recognise that the tax system already differentiates between earned and unearned income. Not long ago, the basic rate was 22% on earnings and 20% on investment........

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