How the Chancellor could win support for raising taxes

The Chancellor may have a sense of déjà vu as the end of this parliamentary session comes into view. Savings will be made in various government department budgets following the spending review, but it’s likely there will still be a significant hole in the country’s finances as we head towards the Autumn Budget. In the meantime, the country faces a summer of speculation of what tax rises may lie ahead to fill the gap.

Whilst it may feel like it is difficult to escape the grey clouds over 11 Downing Street, a ray of sunshine has seemingly broken through in news of the voluntary gifts, donations and bequests made to the UK’s national debt.

The UK Debt Management Office (DMO) is responsible for dealing with such donations and bequests and historically, the total amounts involved have been relatively modest in the context of the government’s finances.

However, data obtained by RSM UK in a freedom of information request suggests that the amount given has increased significantly in the year to 31 March 2025. The total number of donations and bequests during the year has increased to 16, from six the prior financial year. More importantly the amount received by the UK DMO from donations and bequests in the year to 31 March 2025 was £585,112,933. Putting that in context, the average amount received over the previous nine years was a little more than £175,000.

It is generosity of a level that the Chancellor could not have expected but perhaps could provide some inspiration as to how additional revenues could be generated for the Exchequer.

One of the clear challenges with raising tax receipts is that it is difficult to obtain public support for them, with a potential lack of trust over how these funds will be spent a factor behind this.

In contrast, donations to pay off the UK’s national debt have a clear purpose but it is still not well known to the public at large that this is even an option. Perhaps the government can learn something from charities and try to encourage more donations from the public by ring-fencing donations for a specific purpose, as there is still an upward trend in gift aid payments despite cost of living challenges faced by many.

Such an approach is known as hypothecated taxes and there are various arguments for and against them. In the current political and economic environment however, perhaps some more creativity is required given the Chancellor seems handcuffed by manifesto pledges that have effectively pointed her towards decisions on taxes that she might not have otherwise made.

Various surveys have indicated that individuals would be willing to pay more in tax if it led to improved public services. Perhaps it is time to test the reality of that sentiment. If the Chancellor wants to provide a clearer path to obtaining support for funding for certain public service spending needs then she might consider introducing taxes for that specific purpose.

Not only that, whilst new hypothecated taxes might impose a requirement on individuals and businesses to contribute, perhaps more could be made of the opportunity for voluntary donations to be made if they were introduced.

For example, a ring-fenced tax to contribute directly towards frontline NHS staff, teachers or the armed forces could prove popular. Government departments might find future spending reviews a much more straightforward process if they were to effectively become less reliant on the Treasury. There are of course downsides to such an approach as well, with smaller but still important government departments and charities potentially deprived of such funding and a lack of flexibility for the Treasury to utilise government funds as required in a crisis or emergency.

The reality is that the government is more likely to pursue tried and tested methods such as extending the freeze of tax thresholds but if there was ever a time to explore more wildcard options to generate additional tax receipts then this is arguably the time to do so.