The Institute for Fiscal Studies has cautioned Rachel Reeves against a “half-baked dash for revenue” in next month’s budget, warning that rushed tax measures could damage economic growth. The think tank said the chancellor could raise tens of billions of pounds without breaking Labour’s manifesto pledges, but higher rates on poorly designed taxes would harm incentives to work, productivity and growth.
Reeves has ruled out increases in income tax, national insurance and VAT, and faces a spending gap of £20bn to £30bn. Treasury officials are understood to be considering several tax-raising options, while the chancellor is keen to double the near £10bn budget buffer to about £20bn for greater flexibility.
In a chapter from the IFS Green Budget, researchers said the UK was “in a fiscal bind” but could raise significant funds by reforming taxes on savings and investment income. They suggested levying national insurance on employer pension contributions and limiting the 25% tax-free lump sum on pensions, which could raise around £6bn a year.
The report also highlighted a potential £10bn windfall from closing the corporation tax gap for small businesses. It noted that in 2029–30 terms, the gap represented more than £24bn of forgone revenue, and returning to 2017–18 levels could raise more than £10bn.
Isaac Delestre, a senior research economist at IFS and author of the chapter, said: “Revenue-raising seems likely to be a major goal of the coming budget. But if Rachel Reeves limits her ambition to collecting more revenue, she will have fallen short. 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.”
