Rachel Reeves should shift the tax burden away from workers and on to those who take most from the state: our pensioners. That’s the view of the influential Resolution Foundation think-tank, at least.
This morning it recommended increasing income tax by 2p on the pound while cutting employee national insurance (NI) contributions by the same amount. Because no one (above the tax-free allowance) is immune from income tax, this would mean £6 billion is raised without an increase in the tax bill for those whose sole income comes from salaried employment. Pensioners who don’t pay NI would end up footing the bill.
It’s a suggestion worth listening to because Torsten Bell, who used to head up the Resolution Foundation, is now ensconced within the Treasury and has been tasked with finding the revenue-raisers the Chancellor badly needs if she is unwilling, or unable, to seriously reduce Britain’s bloated public spending.
But more than some left-wing think-tank employees trying to help out their former boss, it’s a policy that might reduce the bias against employees in the tax burden. That would, in turn, go some way to repairing Britain’s fraying social contract. No group takes more from the state than pensioners, whose welfare bill is almost twice that of Universal Credit and other DWP support. Add to that the historic luck that left them sitting on most of the nation’s asset wealth, and the case for them paying a greater share of tax begins to look overdue.
That said, any tax-raising measures are not going to help Britain out of its growth malaise given how large and unwieldy our state has become. Raising income tax might plug holes now but, in the long term, it’ll drag growth slower still, reduce future tax takes and create new fiscal holes in the future. Reeves, to her credit, privately admits this, but her party is not prepared to stomach any cuts of the scale needed to tackle the problem. Indeed, unless the Chancellor is prepared to renege on the £25 billion tax raid she waged against employers in her first Budget, these changes would do little to reverse the jobs slump that is holding back our economic growth.
If Labour doesn't permit cuts, the Chancellor is left only with tax rises like the ones set out by the Resolution Foundation. These would require her to break Labour’s manifesto promise not to raise income tax, VAT or employee national insurance. Views diverge on whether Reeves could stomach breaking this core election pledge. City economists have become convinced that Britain’s fiscal black hole is now so large that she must, but political pundits see it as unthinkable at this Budget. Soon enough, we’ll discover whether Reeves prioritises the survival of her promises, or the survival of Britain’s public finances.
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