Chancellor Rachel Reeves is being urged by leading economists to consider tax reforms that could potentially generate tens of billions in revenue without violating Labour’s election promises. As Parliament reconvenes from the conference recess, focus shifts to the upcoming Budget, which is crucial for the government’s financial stability.
The Institute for Fiscal Studies (IFS) acknowledges the challenge but asserts that it is feasible for Reeves to raise significant funds while adhering to Labour’s commitment not to increase VAT, income tax, and employees’ national insurance contributions. However, the IFS cautions against overlooking the potential adverse impacts of alternative tax-raising measures on economic growth and welfare.
One proposal put forth by the IFS involves eliminating capital gains tax relief upon death, which could yield £2.3 billion in 2029-30. Another suggestion is doubling the council tax rate for the top two property bands, potentially raising £4.2 billion. While the additional revenue would benefit local councils, Reeves could choose to reduce grants to municipalities to enhance the Treasury’s resources.
Extending the freeze on personal tax thresholds, including national insurance, is projected to raise approximately £10.4 billion annually by 2029-30, according to economists. However, such a move would contradict Labour’s commitment to not increase taxes for British “working people.” The IFS also advises against limiting income tax relief on pension contributions and warns against implementing an annual wealth tax, a proposal advocated by some left-wing MPs.
Isaac Delestre, a senior research economist at the IFS, emphasized the importance of broader tax reform alongside revenue generation. He urged Reeves to pursue a strategic approach in the Budget to address inefficiencies and inequities in the tax system, promoting economic prosperity and taxpayer well-being.
As the government prepares for the Budget announcement, the call for a more rational and growth-oriented tax system underscores the need for decisive action to navigate the economic challenges ahead.
