Chancellor Rachel Reeves has the potential to generate significant revenue from tax reforms without violating Labour’s election promises, according to leading economists. As Parliament reconvenes from the conference recess, the focus shifts to the upcoming Budget in a critical period.
The Institute for Fiscal Studies (IFS) highlights the challenge for Reeves to address a £20 billion to £30 billion shortfall in public finances while upholding the commitment not to increase VAT, income tax, and employees’ national insurance contributions. The IFS emphasizes that although alternative tax-raising options exist, some may have adverse effects on economic growth and welfare.
One proposed measure by the IFS involves abolishing capital gains tax relief on inheritance, estimated to yield £2.3 billion in 2029-30. Additionally, doubling the council tax on higher property bands could raise £4.2 billion, with a potential offset by reducing grants to local councils.
Extending the freeze on personal tax thresholds, including national insurance, could generate approximately £10.4 billion annually from 2029-30. However, this move would contradict Labour’s pledge not to increase taxes for British “working people.” The IFS cautions against limiting income tax relief on pension contributions and advocates against implementing an annual wealth tax, a proposal supported by some left-wing MPs.
Isaac Delestre, a senior research economist at the IFS, emphasizes the importance of comprehensive tax reform over mere revenue generation. He underscores the opportunity for the Chancellor to enhance the tax system’s efficiency and fairness to promote economic prosperity and well-being.
In conclusion, the upcoming Budget presents an opportunity for meaningful tax reforms aimed at fostering a more rational and beneficial tax system for all taxpayers.
