How Rachel Reeves can ‘break Britain’s tax-and-spend doom loop’ as Budget looms
Sir Tony Blair’s think tank has warned that any significant tax rise proposed by Rachel Reeves would have to be “temporary” and accompanied by reforms to help businesses “hurt” by the last budget.
A report from the Tony Blair Institute (TBI) has called on the Chancellor to “get businesses back on their feet” by overcoming “caution in the government’s first year in office” in the upcoming 26 November Budget.
Ms Reeves has already sparked expectations of higher taxes by refusing to fulfill Labour’s manifesto promises not to increase income tax, national insurance or VAT.
TBI insists that such measures must be accompanied by bold, growth-boosting, pro-business reforms.
These, he argues, are needed to “break Britain’s tax and spend disaster cycle” and allow the government to roll back tax increases as the economy improves.
He rejected the government’s proposal to give workers “day one” protection against unfair dismissal and instead proposed a six-month vesting period.
In its report, the TBI supported “decisive” action such as raising a large revenue-raising tax rather than further increases that “create pain but rarely create momentum.”
“If the Chancellor opts for a larger revenue-raising step – in particular an increase in income tax or value added tax (VAT) contrary to the manifesto – he should make clear that this is temporary and conditional: a short-term measure to stabilize public finances, not a permanent change of direction,” the TBI said.
When growth strengthens and civil service reforms deliver results, taxpayers should see “tax cuts targeted before the election.”
The TBI argued that Ms Reeves should announce a “major first wave of pro-business reforms” in the Budget.
Welcome reforms already implemented by ministers on issues such as planning have often been “balanced” by “contradictory measures” elsewhere, such as an increase in employers’ national insurance.
“Businesses still hurt by last year’s tax rises want a clear signal that the government will prioritize entrepreneurship, stability and delivery,” the former Labor prime minister’s think tank said, adding that the Chancellor must “chart a course for national renewal” that will “get them back on track”.
“Achieving this will require tough, politically costly decisions that signal a clear change of direction and go beyond the caution of the government’s first year in office.”
The TBI has warned that planned changes to immigration policy and employment rights risk damaging the UK’s flexible job market.
Ministers have been urged to preserve the five-year permanent settlement route for the skilled worker visa rather than requiring immigrants to spend ten years in the UK before applying.
Other TBI recommendations include:
- Expanding access to and reducing the cost of the global talent visa, introducing a new “technology excellence” visa for engineers, founders and researchers, and creating a permanent key worker visa for scarce occupations such as construction and maintenance;
- Simplifying employment protection for high earners;
- Replacing fuel tax with road pricing;
- Abolishing stamp duty on shares and introducing a government credit to spread the cost of stamp duty on property transactions over 20 years.
To combat rising benefit bills, the think tank said ministers should create a “preventive welfare” program that invests future planned welfare payments into NHS treatments such as speech therapy, digital physiotherapy and new obesity treatments such as Ozempic.
The Labor government tried to restrict eligibility to the personal independence payment (Pip) earlier this year but benefits reforms were watered down after a backroom rebellion.
Tom Smith, director of economic policy at TBI, said: “This Budget requires a clear break from last year – a step change that makes growth the government’s aim, not just one of many targets.
“The Chancellor accepts he has difficult choices to make. He cannot satisfy markets, party, business and voters all at once. The only way to do this over time is to put Britain back on the growth path, which means a new bargain between government and business.”
“A credible budget should not just raise taxes, it should also raise the eyebrows of Britain. The government needs to demonstrate fiscal discipline as well as the confidence to support business.”
“Only a bold, pro-entrepreneurship plan can raise living standards, strengthen public finances and give government fiscal space for the changes voters want. Progressive policy tomorrow requires a pro-business growth plan today.”
When asked about the TBI’s recommendations, the Treasury pointed to the Chancellor’s pre-Budget speech on Tuesday, in which he said he would “do what is necessary to protect families from high inflation and interest rates, protect our public services from a return to austerity, and keep debt under control to ensure the economy we pass on to future generations is secure.”
