An influential think tank is proposing a significant change to the UK’s tax structure. The Resolution Foundation has urged Chancellor Rachel Reeves to consider a major Tax System Overhaul in her autumn budget. Specifically, they recommend cutting employee National Insurance (NI) by 2p. However, they suggest adding this 2p to all rates of income tax.
This proposed Tax System Overhaul aims to raise substantial revenue fairly. The think tank estimates the move could generate an additional £6 billion per year. Consequently, this would help the government meet its funding challenges. The logic is that income tax applies to a broader group than employee NI. For example, pensioners and landlords pay income tax but not employee NI. Therefore, this change would spread the tax burden more widely.
The proposal presents a political dilemma for the Chancellor. Importantly, it could be seen as breaking Labour’s manifesto pledge not to raise income tax. However, the overall tax rate for most employees would remain unchanged. This Tax System Overhaul would essentially rebalance the system rather than increase the total tax take for workers.
The Resolution Foundation argues the current system is unfair. They say it creates a bias against employees. Former Conservative Chancellor Jeremy Hunt also called NI an “unfair double tax on work.” His government cut NI by 4p without raising income tax. Now, this new plan builds on that direction but with a focus on raising revenue.
The Chancellor faces intense pressure to find funds. Economists warn of a potential £40 billion shortfall against her fiscal rules. Reeves has remained quiet on specific tax measures. Instead, she emphasizes her goal to boost economic growth. Nonetheless, this proposal will receive close scrutiny in the Treasury.
The think tank’s influence within the government is notable. For instance, Pensions Minister Torsten Bell is the former chief executive of the Resolution Foundation. Additionally, a junior Treasury minister promoted in the recent reshuffle is a former researcher from the group.
Beyond the NI switch, the proposed Tax System Overhaul includes other measures. The full package could raise up to £30 billion. Other ideas include expanding a sugar and salt tax and introducing a carbon charge on long-haul flights. The Foundation believes these are sensible reforms. They argue the changes would raise revenue with minimal harm to the economy.
A Treasury spokesperson declined to comment on the speculation. They stated that tax decisions are made at fiscal events. The autumn budget is scheduled for November 26th.
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