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What taxes might be raised in the Budget?

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Is Reform UK's plan to get Farage into No 10 mission impossible?
Getty Images Chancellor Rachel Reeves wearing a dark green suit jacket, sitting alongside Prime Minister Sir Keir Starmer wearing a white shirt during the general election campaignGetty Images

Chancellor Rachel Reeves has warned that her first Budget will involve “difficult decisions” on tax, spending and benefits.

Shortly after Labour took power, Reeves said the government would have to increase taxes to plug what it claimed was a £22bn “hole” in the public finances.

Earlier this month, government sources said the chancellor was looking to make tax rises and spending cuts to the value of £40bn in the Budget, which will take place on 30 October.

Labour has ruled out raising taxes on “working people”, including VAT (value added tax), income tax and National Insurance.

So which taxes might go up?

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1. A ‘stealth tax’

One option is though what has been dubbed a stealth tax – a means of raising revenue which is not explicitly labelled or intended as a tax.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), believes the most obvious solution would be to focus on tax thresholds – the amount of money you can earn before any tax starts to be paid.

Currently the thresholds on income tax and National Insurance are frozen until 2028, a policy brought in by the previous government. The chancellor is now said to be weighing a plan to continue the freeze beyond that.

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The policy amounts to a tax rise because of a process called “fiscal drag”, which sees more people “dragged” into paying higher rates of tax as their wages rise.

The Resolution Foundation, a think tank that aims to improve living standards for low-to-middle income families, calculates the current freeze will generate about £40bn of revenue by 2028.

Reports suggest extending the freeze could raise an extra £7bn a year.

2. Employer National Insurance contributions

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While the Labour Party’s election manifesto ruled out raising National Insurance (NI) it appears increasingly likely that NI payments made by businesses will rise.

The chancellor has given signals that employers will face higher NI contributions, and Prime Minister Sir Keir Starmer has not ruled out the rises either.

Employers pay NI at a rate of 13.8% on all employees’ earnings above £175 per week, but pension contributions made by employers are currently exempt from the levy.

Treasury officials are reportedly exploring NI on employer pension contributions to raise revenue.

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Businesses have hit out over a potential change, arguing it will make hiring staff and creating jobs harder.

3. Inheritance tax

The government is considering changes to inheritance tax in order to raise more money, the BBC understands.

It is not known how many people are likely to end up paying more, nor how much more they would pay.

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It is understood the prime minister and the chancellor are considering multiple changes to the tax, which currently includes several exemptions and reliefs.

Inheritance tax, currently paid at a rate of 40%, is charged on the part of a deceased person’s estate above a threshold of £325,000.

But it only applies to fewer than one in 20 estates.

No tax is paid if the estate is valued at less than £325,000, or if anything above this threshold is left to a husband or wife, civil partner, charity, or a community amateur sports club.

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And if a home is part of the estate and a person’s children and grandchildren stand to inherit it, the threshold can go up to £500,000.

Reeves could raise the rate of inheritance tax, or curb the relief available on certain inherited assets.

Current exemptions and reliefs include rules around gifts that are given while you are alive. Gifts given less than seven years before you die may be taxed.

Other exemptions include agricultural land and pension savings, which can both be inherited tax-free.

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There are also allowances for unquoted shares, which are shares in a business not listed on the stock exchange.

4. Capital gains tax

Another route Reeves could take is to put up capital gains tax (CGT).

This is charged on the profit made from the sale of an asset that has increased in value, with some examples including stocks that are not held in ISAs or second homes.

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CGT is payable by individuals, but also self-employed sole traders, partners in business partnerships and company owners, among others.

It starts at a rate of 10% (or 18% on residential property) on profits above £3,000. It then rises to 20% on any amount above the basic tax rate, or 24% on residential property.

Critics point out that CGT rates are substantially lower than income tax. They say this can benefit wealthier people and Reeves could opt to level the playing field or cut some CGT tax breaks for businesses.

There has been speculation that rate could be increased in the Budget, although the prime minister appeared to dismiss suggestions that it could rise as high as 39%.

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Industry groups have warned that increasing CGT could hit those at the centre of Labour’s plans to grow the economy.

“No government at all serious about growth would hike CGT on entrepreneurs selling a small business,” Tina McKenzie from the Federation of Small Businesses (FSB) told the BBC.

5. Fuel duty

Fuel duty is a tax that is levied on purchases of petrol, diesel and other fuels – the level it is set at should have an impact on what drivers pay at the pumps.

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The levy is a “significant source” of revenue for government, according to Office for Budget Responsibility, with £24.7bn expected to have been raised in 2023-24.

But fuel duty has not been raised in more than a decade. Between 2012 and 2022 it was frozen at the same level.

In March 2022, the then Conservative chancellor Rishi Sunak cut it by 5p a litre after Russia’s invasion of Ukraine led to record pump prices.

However, some motoring groups have argued this cut – which is due to end in March next year – has not been passed on to drivers.

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This has prompted the RAC to suggest the cut should be scrapped by Reeves in the Budget, and the prime minister has not ruled out a rise in fuel duty in the Budget.

Simon Williams, head of policy at the RAC, said the motoring group had reached the conclusion the chancellor “has no option but to put fuel duty back up”.

Reeves “knows the 5p discount is losing the Treasury £2bn a year,” he said.

6. Reduce pension tax relief

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When people or their employers pay into private pension pots, they receive tax relief on these contributions, up to set limits.

The relief allows some of a person’s earnings that may have been taken by government in tax to go into their savings for retirement instead.

Under the current system, savers receive tax relief at the same rate as their income tax – meaning basic rate taxpayers receive relief at 20% and higher rate taxpayers at 40% or 45%.

In the run-up to big political events like the Budget, Tom Selby, director of public policy at AJ Bell, says that there is often speculation that a flat rate of pension tax relief could be introduced, although reports have suggested this is now an unlikely move.

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A change would mean the system is less generous for higher earners, but the IFS has suggested this could raise “billions” for the government.

Some opponents have said, however, this could dissuade people from saving for the future and might be difficult to implement.

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Travel

English beach village so beautiful locals want to keep secret – right next to famous seaside resort

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Felpham is often overlooked in favour of the nearby Bognor Regis

AN English village is often overlooked by a famous seaside resort nearby – and locals want to keep it that way.

Felpham is right next to Bognor Regis.

Felpham is often overlooked in favour of the nearby Bognor Regis

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Felpham is often overlooked in favour of the nearby Bognor RegisCredit: Alamy
But locals have raved about the pretty beach

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But locals have raved about the pretty beachCredit: Alamy
The village was the home of poet William Blake

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The village was the home of poet William BlakeCredit: Alamy

But Felpham has its own place in history, being where the poet William Blake lived.

He once called Felpham the “sweetest spot on earth” as well as saying: “Away to sweet Felpham, for heaven is there.”

Despite being a small village, it has a long beach with both sand and shingle.

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People have raved about the “lovely” beach, which has a long promenade next to it as well.

One wrote: “Great time just sitting watching the boats, brings back memories of when we used to go crabbing when the kids were a lot smaller.”

Another called it their “favourite local beach”.

The Boat House cafe on the beach is also popular with visitors as well as dog-walkers in the winter months.

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But Felpham is lesser-visited and locals might want to keep it that way.

The Felpham website states: “Felpham is a secret we like to keep to ourselves.

“Why would we want to share our beautiful beaches and parks, our great pubs, restaurants, hotels and shops and so much more?”

Weston Hotel: Scarborough’s Coastal Gem

However, they added: “I guess we have to let others know how lucky we are. Just make sure you don’t spoil it please.”

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While there are no celebs who call it home, there are a number of famous faces who have backed the village.

Bill Nighy recently visited to support a local campaign to keep Felpham’s Post Office open.

And Iron Maiden frontman Bruce Dickinson is a patron of The Blake Cottage Trust, which protects William Blake’s home.

The beach is often much quieter than the town of Bognor Regis

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The beach is often much quieter than the town of Bognor RegisCredit: Alamy
While no seaside arcades, Felpham has rows of the iconic beach huts

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While no seaside arcades, Felpham has rows of the iconic beach hutsCredit: Alamy

Despite being a small village, there are a number of pubs, restaurants and hotels to choose from.

There is The George Inn, The Thatched House and The Fox Inn, all within walking distance of each other.

Otherwise the beachfront The Lobster Pot has both sea views and seafood on offer.

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And of course, a seaside village is nothing without a fish and chip shops, with the Felpham Chippy highly rated.

You won’t find any major hotel chains in Felpham – unless you head over to Bognor Regis – although there are B&Bs as well as the seafront Beachcroft Hotel, with rooms and beach huts to stay in.

Another seaside village that is a local-kept secret

Caroline Iggulden visited the nearby Goring-by-Sea.

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“Staring out at the quiet beach, a local told me: ‘It is so quiet here, even in the summer – but we want to keep it our secret’.

“It is far less busy than the better-known Sussex coastal towns of Littlehampton, Worthing and Bognor Regis,

“Unlike many traditional UK seasides, you will not find arcades or roller coaster-filled piers here.

“Instead, Goring-by-Sea has everything you’d want for a fun seaside getaway, but without the packed beaches and fully booked restaurants.

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“This includes the bustling Sea Lane Cafe, where locals are indulging in lazy mornings or  Worthing Watersports for your paddleboards and kayaks.”

Still want to go to Bognor Regis? Here is the new £15million attraction opening at the town’s Butlin’s.

And one mum has been visiting Butlin’s for 40 years – here’s how she thinks it has changed.

The village has a number of pubs, B&Bs and cafes to choose from too

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The village has a number of pubs, B&Bs and cafes to choose from tooCredit: Alamy

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Water bills set to rise by more than expected

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Is Reform UK's plan to get Farage into No 10 mission impossible?
Getty Images Woman with red hair leans over a sink with the tap running to clean her teethGetty Images

Water bills will go up by more than previously thought over the next five years, to fund higher costs and more investment, the BBC understands.

The regulator, Ofwat, is in the process of deciding how much customer bills will be allowed to rise.

In July, Ofwat provisionally agreed to allow bills to rise by 21% above inflation over the period 2025 to 2030.

But bills now look likely to rise more than that after Ofwat makes its final decision at the end of the year.

Later this week, the government will also announce plans that are expected to lead to the biggest overhaul of the water industry since privatisation in the late 1980s.

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The aim is to protect customers from the impact of rising bills, while also finding funding for the huge investment that is required to deal with population growth, the impact of climate change and an ageing water infrastructure.

While the entire sector is facing challenges, the rises Ofwat proposed in July varied greatly from company to company.

The highest agreed rise, of 44%, was for Southern Water, and the lowest was a rise of 6% for Affinity Water.

Thames Water, the UK’s largest water company, was given the go-ahead to raise bills 23% rise, but since then has said it will not survive if it cannot raise bills by 59%.

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Thames shareholders refused to inject promised funds into the company earlier this year as they said it would be impossible to make any profit at proposed bill levels.

One of the reasons that Ofwat is considering permitting bigger bill increases is to reflect higher financing costs, the BBC understands.

On Wednesday a new independent commission with a high-profile chair will be announced to advise the government on a “proper reset” of the industry to improve performance and bring in new investment.

The commission’s review will seek input from a wide pool of stakeholders including customers, environmental bodies, investors and engineers whose interests are not always aligned.

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‘Doom loop’

Customers have been furious at the scale of spills and pollution while investors have claimed the bills they have been allowed to charge are insufficient to attract the investment needed to fix the problems.

Some companies have been caught in what one executive described as a “doom loop” – with underperforming companies fined for sewage discharge and leaks leaving them with even less money to fix the very problems they have been fined for.

Investors have also been condemned for the dividends and executive pay they have paid out while pollution and leaks have risen.

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In short, no-one is happy with the current set up.

The main regulator Ofwat is expected to welcome the plans to establish the new commission.

However, many see it as a reflection of widespread dissatisfaction with the way the industry has been regulated, with some claiming that Ofwat got the balance wrong between keeping customer bills low and encouraging investment.

The new commission is not expected to report back until after Ofwat has made its final decision on how much bills may rise by 2030.

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Celebrity-backed health tech firm Zoe launches second round of layoffs in six months

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Celebrity-backed health tech firm Zoe launches second round of layoffs in six months

BRITISH health tech firm Zoe, championed by celebrities including Davina McCall, has launched a second round of layoffs in six months.

Last year Zoe was deemed one of the fastest-growing firms in the country as health fans signed up to wear its bright yellow blood sugar sensors on their arms.

British health tech firm Zoe has launched a second round of layoffs in six months

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British health tech firm Zoe has launched a second round of layoffs in six months
The firm was started seven years ago by Professor Tim Spector

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The firm was started seven years ago by Professor Tim SpectorCredit: Rex

However, in April the firm admitted that it had overexpanded its workforce and had to cut costs by 20 per cent.

The Sun can reveal it is now making further job cuts while insiders claim sales are faltering.

Sources said staff had been told via a video call there had to be further changes and redundancies were required.

A consultation with staff is now ongoing, a legal requirement for companies making cuts of more than 20 people. It has refused to confirm the scale of the job cuts.

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One worker said: “There is a terrible atmosphere.

“Everyone is scared and we don’t know whether we will have jobs at the end of this four-week window. It’s just looming over us.”

Co-founder Professor Tim Spector, who started the firm seven years ago, has been credited for pushing public awareness about “gut health”.

Zoe’s cheapest starter package costs £299 and charges users a further £25 a month for recipe guides and diet tips.

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The brand has a deal with Marks & Spencer to produce mini “gut shots” of fermented milk for £2 and also a cereal range with Waitrose.

The business raised £11.5million in July to fund its expansion.

Professor Tim Spector has shared a healthy way to make pasta using three tips.

The firm said: “We are restructuring our teams to continue on our ambitious mission of transforming the health of millions.

“We are dedicated to keeping our employees engaged and informed in the coming weeks.”

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A RECORD HIGH FOR UK MUSIC

RAYE, Dua Lipa and Ed Sheeran helped push the value of British music exports to a record high of £775million last year.

However, intense competition from artists from Latin America and South Korea is biting into business, figures from British music industry body the BPI show.

Artists like Raye helped push the value of British music exports to a record high of £775million last year

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Artists like Raye helped push the value of British music exports to a record high of £775million last yearCredit: Getty
Ed Sheeran is also a huge export

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Ed Sheeran is also a huge exportCredit: Getty

Last year’s 7.6 per cent rise in exports was just half the 2022 rate of growth, it said.

Britain accounts for about 10 per cent of global music streaming, with timeless tunes from the likes of Elton John, The Beatles and Queen still proving popular.

BPI chief executive Jo Twist said: “It is encouraging — but we can and must do even better in the face of fierce global competition.”

CELEBS’ AD QUIZ

TWENTY social media influencers are being quizzed under caution by the City watchdog about their illegal promotion of financial products.

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The Financial Conduct Authority said there had been a rise in so-called “finfluencers”, who promote foreign currency exchanges, crypto and complex trading to users.

The FCA says they are not authorised or qualified to give financial advice.

It charged nine stars this year, including Love Island’s Eva Zapico and Towie’s Lauren Goodger, for plugging dodgy investments on social media.

TEN-PIN’S A WIN

HOLLYWOOD BOWL is striking record levels of cash after tempting ten-pin fans to spend more on its snacks, drinks, and arcade games.

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The bowling alley chain, which has 72 locations in the UK and 13 in Canada, saw a 7.2 per cent rise in annual revenues to £230.4million.

UK sales rose by 4 per cent to £200million, but were flat once new openings were stripped out.

The firm has benefited from families looking for low-cost indoor entertainment in the unpredictable weather.

RATES CAUTION

ONE of the Bank of England’s rate-setters says she favours a “cautious” approach to lowering interest rates, despite some economists’ predictions of hefty rate cuts next year.

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Megan Greene wrote in the Financial Times yesterday she was concerned about rushing into a rate-cutting cycle and cautioned a consumer recovery “could take much longer”.

It comes as many still have to refinance their mortgages at higher rates than before.

Goldman Sachs yesterday said rates could fall to 2.75 per cent by next November.

V.W. £27M TAB FOR CAR HELL

VOLKSWAGEN has been fined £5.4million for its unfair treatment of vulnerable customers, and told to pay £21.5million in compensation.

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The Financial Conduct Authority found nearly 110,000 customers who suffered due to “serious failings” by the German car giant’s finance arm over six years.

Volkswagen has been fined £5.4million for its unfair treatment of vulnerable customers

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Volkswagen has been fined £5.4million for its unfair treatment of vulnerable customersCredit: Getty

A probe by the watchdog revealed VW took cars away from vulnerable customers who were struggling to keep up with payments, without considering other options.

It also charged them the extra costs of repossessing their car, even when customers said they had no means to pay.

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In one case, the firm took back the vehicle from someone with depression and who had previously attempted suicide, despite telling VW they needed the car for work.

The watchdog’s Therese Chambers said: “Volkswagen Finance made tough personal situations worse.

“The fine and redress should send clear signals to lenders they need to properly support those in financial difficulty.”

AXE SHOP TAX PLEA

MORE than 300 business leaders have called the UK’s tourist tax a “spectacular own goal” and urged the Chancellor to scrap it in the Budget.

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Bosses at Mulberry, John Lewis and Shakespeare’s Globe wrote to Rachel Reeves to argue the UK is at a “global disadvantage” as the only country in Europe not to offer tax-free shopping to overseas visitors.

The tax is costing the economy £11.1billion, analysis by the Centre for Economics and Business Research says.

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Where to find a classic Louis Vuitton trunk

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c1929 Lily Pons shoe trunk POA, bentleyslondon.com

Unlock the Editor’s Digest for free

Last December, a gigantic monogrammed Louis Vuitton trunk descended upon the Champs-Élysées in Paris. The structure, a façade concealing the development of a new Louis Vuitton hotel, was instantly recognisable. Trunks were the original Vuitton product and, more than 150 years after Louis Vuitton founded his label in 1854, they remain the most iconic expression of the world’s most valuable luxury brand. From the very first flat-topped canvas edition through to the stripy, chequered and monogrammed versions that followed, demand for the luxury carriers has yet to cease. You can see them with Audrey Hepburn in Love in the Afternoon (1957), Leonardo DiCaprio in Catch Me If You Can (2002) and on Instagram with Rihanna as she strolls off a plane. 

Louis Vuitton produces new models of trunks every year, priced from £2,000 for coffrets: Tyler, the Creator recently collaborated with menswear creative director Pharrell Williams on a capsule collection featuring classic brown trunks updated with a multicoloured blossom motif, while in Vuitton’s 2022 advertising campaign featuring Cristiano Ronaldo and Lionel Messi, they played chess atop a brown leather trunk. Lucile Andreani, Christie’s head of handbags and accessories for EMEA, has observed a “peak” in demand for some of these more recent iterations, such as those produced by the late designer Virgil Abloh. A limited-edition green trunk from his 2020 collection recently sold on 1stdibs for $372,000.

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c1929 Lily Pons shoe trunk POA, bentleyslondon.com
c1929 Lily Pons shoe trunk POA, bentleyslondon.com © Harald Altmaier, Bentleys London
A copper Explorer Wardrobe trunk, sold at Christie’s for €189,000. 

A copper Explorer Wardrobe trunk, sold at Christie’s for €189,000

A monogram canvas library trunk, sold at Christie’s for €88,200

A monogram canvas library trunk, sold at Christie’s for €88,200

Yet classic, elegantly aged pieces tend to dominate the secondary market. Vuitton is “arguably the most recognisable fashion brand in the world”, says Tim Bent of vintage-luggage specialist Bentleys. “People are fascinated by its history.” For Andreani, their longstanding appeal is in their ability to “transport us back to the eras they were used in”. A wide collector base also helps keep prices up, with those looking to invest competing against buyers furnishing hotels and homes.

For Bent, antique leather pieces are the holy grail. “They’re very discreet and I like how they show their age,” he says. He’s currently holding onto a leather shoe trunk from the 1920s, which has been fitted with an English lock by Bramah, a locksmith known for its “unpickable” designs. He teases that it will be for sale, eventually.

a c1890 zinc Explorer trunk, auctioned at Catawiki for €66,000
a c1890 zinc Explorer trunk, auctioned at Catawiki for €66,000 © Cécile Domens
The monogram of the Louis Vuitton zinc Explorer trunk sold at Catawiki for €66,000
The monogram of the Louis Vuitton zinc Explorer trunk sold at Catawiki for €66,000 © Cécile Domens

“I try to find the best original, untouched, unrestored versions,” Bent advises. As with a vintage designer bag, a touch-up can risk depreciating the value of an item, and patina adds character and evidence of authenticity. Look out for any oxidation on the hardware or natural wear of the canvas or leather.

Establishing pedigree is essential. The now-ubiquitous LV monogram was only introduced in 1896 to battle counterfeits, and on earlier Trianon (canvas) and Damier (chequered) versions, the trademark branding is not so obvious. Elisio Das-Neves, who has been trading in the Paris Puces since 1997, explains where one should look. “Louis Vuitton trunks will always have a label inside with their unique number,” he says. “The corner studding is also all signed, as are the wooden slats found on some of the older trunks.”

Yvette Labrousse, Miss France 1930, with her trunks
Yvette Labrousse, Miss France 1930, with her trunks © Archives Louis Vuitton Mallettier/GL Manuel Freres
A 1934 canvas trunk, sold for €81,900

A 1934 canvas trunk, sold for €81,900 at Christie’s

a c1926 canvas trunk, sold for €94,500

a c1926 canvas trunk, sold for €94,500 at Christie’s

For those in search of added panache, there are plenty of wackier models on the market. Christie’s auction house recently closed its Legendary Trunks sale, the largest collection of Vuitton trunks ever offered (it had been amassed by a private collector). The 98 lots included a copper rifle trunk (which sold for €138,600), a shiny brown alligator caviar set with gold hardware (€25,200) and a bespoke monogrammed canvas croquet trunk (€30,240). Ninety-five per cent of lots sold, totalling €2.4mn, a world record for a collection of the brand’s trunks. Currently on sale with In Luxury We Trust is an antique picnic trunk that can serve six, complete with a glass decanter (£47,000). Bent searches “anywhere and everywhere” for trunks, but the most “magical” are often discovered by chance. Online marketplace Catawiki recently auctioned off a large-format 19th-century Zinc Explorer (with hermetically sealed locks designed for travel through humid climes) after seller Chloé Panissierrare discovered it underneath a tablecloth at her mother-in-law’s home in the south of France. “Only about 50-100 of these trunks exist today,” Catawiki’s Fleur Feijen says of the model, which would have been produced to order. 

Karrie Trim regularly peruses sites such as eBay, Poshmark and The RealReal for her next find. “I’m always hoping someone will post without knowing what it is,” says the Washington-based collector. When we speak she is on the hunt for a Sharon Stone vanity case (a great place for collectors to start, Feijen advises) to add to her 21-strong archive, which dates from between 1871 and 2023. But she keeps an open mind. “Sometimes the trunks find me, sometimes I find them.” 

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Labour’s worker reforms will cost British firms £5bn a year and risk job losses, Government analysis reveals

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Labour’s worker reforms will cost British firms £5bn a year and risk job losses, Government analysis reveals

LABOUR’S worker reforms will cost business £5billion a year and raise the risk of higher prices and job losses, the Government’s analysis shows.

Nearly one in five companies will have to react to the cost burden by cutting their workforce.

Angela Rayner planned overhaul of worker reforms will cost business £5billion a year and raise the risk of higher prices and job losses

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Angela Rayner planned overhaul of worker reforms will cost business £5billion a year and raise the risk of higher prices and job lossesCredit: LNP

The overhaul by Deputy PM Angela Rayner and Business Secretary Jonathan Reynolds includes changes to sick leave rights and a ban on zero-hours contracts.

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One in ten employers may end up cutting workers’ pay, analysis of the Office for National Statistics data shows.

It also suggested 40 per cent would most likely raise their prices, risking a return of inflation.

The alternative is businesses losing profits by absorbing costs.

The party acknowledged smaller businesses would face a bigger hit, despite ministers arguing against exemptions.

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The Government has said it would “consider mitigation”.

Analysis showed the largest annual bills could be £1billion for ending zero-hours contracts and another £1billion for improving sick pay.

Ms Rayner said yesterday: “We said we would get on and deliver the biggest upgrade to rights at work in a generation and the growth our economy needs and that is exactly what we’re doing.”

Shadow Business Secretary Kevin Hollinrake is urging FTSE 100 bosses to raise their concerns about Labour’s package of regulation.

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And Neil Carberry at the Recruitment and Employment Confederation said: “Today’s impact assessment shows the cost impact will fall on firms who are already facing a wide range of other rising costs.”

New workers’ right rules will just mean firms hiring fewer people say Julia Hartley-Brewer

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Cuba plunged into crisis by prolonged power blackouts

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Unlock the Editor’s Digest for free

Cuba’s communist government is facing its toughest challenge since the 1991 collapse of the Soviet Union as days of nationwide power failures cripple an island already suffering from severe shortages of food, fuel and medicine.

The national grid has collapsed four times in the past four days, leaving most of the country, including the capital Havana, without power. Residents were reduced to carrying buckets of water from cisterns or wells to their houses and queueing longer than usual for bread and other basic necessities.

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Small anti-government protests broke out over the weekend around the island, and President Miguel Díaz-Canel appeared on state television wearing military fatigues on Sunday night to warn Cubans not to take part in “vandalism”.

“We are not going to accept nor allow anyone to act as a vandal and much less to affect the tranquility of our people,” said the president, who is rarely seen in uniform.

Schools and all non-essential businesses were closed on Monday, as the authorities struggled to re-establish power. By afternoon, state-run media said about 89 per cent of residents in Havana had electricity and it was slowly returning to rural areas.

As Cuban authorities were struggling to reconnect the country’s decrepit power grid on Sunday, a category-one hurricane barrelled into the east of the island, dumping heavy rain and lashing the area with winds.

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The energy crisis comes at a perilous time for Cuba, which is struggling to provide its population with vital necessities such as food, water and rubbish collection, and has been hit by lacklustre tourist demand and severe US sanctions.

“The Cuban government and Communist party are facing the worst crisis since the collapse of the Soviet Union, both economically and politically,” said Bill LeoGrande, a Cuba specialist at American University in Washington. “The government is broke, it doesn’t have the money to import enough food or fuel.”

Cubans are accustomed to power cuts but the problem has become increasingly acute, with four-hour outages a regular feature of life in Havana, while in the countryside they often last for more than 12 hours a day.

In an address to the nation last week, Prime Minister Manuel Marrero said the country could no longer afford to buy enough fuel on the international market to generate the power it needs.

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Supplies from Cuba’s international allies do not make up for the shortfall. Venezuela has reduced oil shipments to Cuba considerably in recent years, and although Russia has increased deliveries of crude, they are not enough to power the island. China is installing solar panels on the island but this is a long-term project.

Meanwhile, the government has failed to maintain Soviet-era power stations and has not fully implemented promised market-oriented reforms that could help it transition to a more open economy.

The US embargo is also driving the fuel shortages. The Biden administration has left in place “maximum pressure” Trump-era sanctions, which economists say prevent billions of dollars a year from flowing into state coffers.

The reinforced US embargo has deprived the Cuban state of “the ability to do many things, including import spare parts and fuel for electricity production”, said Fulton Armstrong, a former US national intelligence officer for Latin America.

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Analysts say that to secure a more sustainable power supply Cuba must replace its Soviet-era power plants, most of which are nearly half a century old.

“The solution is radical reform and outside investment,” said Ricardo Torres, a research fellow at the Center for Latin American and Latino Studies at American University.

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