The Resolution Foundation has warned Chancellor John Healey that delaying tough decisions at the Budget is “not the right approach”, urging him to raise some £8 billion in taxes to rebuild his halved fiscal buffer.
The think tank called for the Budget on October 28 to hike taxes – including on pensioners – to plug the financial headroom it predicted has dropped from £24 billion to as little as £12 billion because of the Middle East war. It also urged support targeted at those struggling most with the cost of living.
Think tank warns against deferring key choices
James Smith, chief economist at the think tank influential upon the Labour Government’s thinking, told a Tuesday briefing: “We think there’ll be a pretty chunky deterioration in the public finances.”
He warned the Treasury against its apparent plan to defer key choices to next year’s spending review.
“The idea seems to be to sort of take this temporary hit to the public finances, which you can view as temporary if you think the war is going to be a temporary phenomenon, and say we’ll take difficult decisions in the future, we’ll not do anything all that major and have a sort of minimal fiscal event at the Budget.
“And we think that’s really not the right approach because there’s really two big challenges that we need to face head on here.”
Two priorities: winter support and rebuilding headroom
The first priority should be to help families through “the difficult winter ahead”, including through support with soaring energy bills for households where no one has an income of more than £24,000, he said.
But the foundation urged the Government not to extend the long-running fuel duty freeze, which it said disproportionately benefits high-income families, and to instead introduce small predictable increases.
The second priority should be rebuilding the Chancellor’s fiscal headroom – the leeway against his day-to-day spending rules – to at least £20 billion through spending restraints and around £8 billion in tax rises, the think tank said.
Proposed tax measures
Its proposals include a tax switch which would see employee national insurance cut by 2p and income tax rates go up by the same amount, hitting the self-employed, landlords and pensioners with taxable income. That measure would raise around £6 billion in 2029-30, the Resolution Foundation said.
It also recommends closing capital gains tax loopholes to raise £4 billion by ending exemptions for the owners of assets when they die or leave the UK, and charging national insurance on partnership income such as for law firm partners, which would raise another £2 billion.
Mr Smith said: “If you wanted to set out how you would actually fund that higher defence spending, the sort of switch we’ve proposed in the past of moving some tax from national insurance to income tax, increasing taxes on unearned income from not being an employee, that would be a way to make a serious dent in that.”
He added: “What we’re calling for today is a Budget that focuses up to our problems and doesn’t push everything off into the never never.”
