Research by the Institute for Fiscal Studies comes as Parliament returns from the conference recess today with attention turning to next month’s make-or-break Budget
Chancellor Rachel Reeves could raise tens of billions from tax reforms without breaking Labour’s manifesto pledges, leading economists say.
It comes as Parliament returns from the conference recess today with attention turning to next month’s make-or-break Budget. There have been warnings Ms Reeves faces plugging a £20billion-£30billion blackhole in the public finances in order to stick to her spending rules.
The Institute for Fiscal Studies (IFS) says it “would be difficult, but not impossible” for her to raise billions while sticking to Labour’s election vow not to hike three of the biggest taxes. These include VAT, income tax, and employees’ national insurance contributions.
But the think-tank warns: “Just because large sums could be raised elsewhere does not mean it would be sensible. Many of the tax-raising options outside the ‘big three’ would have particularly damaging effects on growth and welfare.”
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Among many options set out by the IFS include ending capital gains tax relief on death to raise £2.3billion in 2029-30. This allows for assets to be inherited without paying capital gains tax on the increase in value over the deceased person’s lifetime.
The think-tank says doubling council tax rate on the top two property bands would raise £4.2billion. While this money would go to local councils, the IFS says she could in turn reduce the grants paid to town halls if she wanted to bolster the Treasury’s coffers.
Economists said extending a freeze on personal tax thresholds including national insurance further would be expected to raise around £10.4 billion a year from 2029-30. But this would amount to a breach of Labour’s manifesto pledge not to hike taxes for “working people” in Britain.
It also warned that restricting income tax relief on pension contributions “should be avoided” and repeated its cautions against an annual wealth tax. In recent months left-wing MPs have demanded a wealth tax to raise billions.
Isaac Delestre, a senior research economist at the think tank and an author of the chapter, said Ms Reeves would have “fallen short” if she limits her ambition to a dash for revenue without wider reform.
He said: “Almost any package of tax rises is likely to weigh on growth, but by tackling some of the inefficiency and unfairness in our existing tax system, the Chancellor could limit the economic damage.
“The last thing we need in November is directionless tinkering and half-baked fixes. There is an opportunity here.
“The Chancellor should use this Budget to take real steps down the road towards a more rational tax system that is better geared to promoting the prosperity and well-being of taxpayers.”
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