Reeves Urged To Swap NI Cut For Income Tax Rise

LONDON, Sept 24 – Chancellor Rachel Reeves is under fresh pressure to raise income tax while cutting national insurance in her November Budget, after a leading think tank said such a move would hit pensioners and landlords hardest while protecting workers’ wages.

The Resolution Foundation has proposed a 2p reduction in national insurance contributions matched by a 2p rise in income tax, a policy it claims could generate £6bn annually. The think tank argues the measure would “level the playing field” in the UK tax system by ensuring pensioners and landlords contribute more.

Adam Corlett, principal economist at the Resolution Foundation, said: “Policy U-turns, higher borrowing costs and lower productivity growth mean that the chancellor will need to act to avoid borrowing costs rising even further this autumn. Significant tax rises will be needed for the chancellor to send a clear signal that the UK’s public finances are under control.”

Pressure on Reeves ahead of Budget

The calls come days after warnings that further tax rises are “inevitable” following figures showing government borrowing had surged. Reeves faces a difficult balancing act in her 26 November Budget as she attempts to restore fiscal credibility while honouring Labour’s manifesto promise not to increase income tax, national insurance or VAT on workers’ pay packets.

Treasury chief secretary James Murray declined to rule out tax rises when pressed on ITV’s Peston programme, saying he would not “write a Budget here”. Housing minister Matthew Pennycook, however, reiterated Labour’s pledge. Speaking to Times Radio, he said: “We’re going to honour our commitments not to increase the rates of income tax, national insurance or VAT on the pay packets of working people.”

Alternative tax measures proposed

Alongside the income tax–NI switch, the Resolution Foundation has urged the Government to consider a suite of additional levies to bolster revenues and improve fairness. Proposals include:

• Raising tax on dividends.
• Tackling unpaid corporation tax from small businesses.
• Introducing a carbon charge on long-haul flights and shipping.
• Expanding taxation of sugar and salt.
• Reducing the VAT threshold for businesses from £90,000 to £30,000, raising an estimated £2bn annually by 2029-30.

Corlett said the measures would ensure “lawyers and landlords face the same tax rates as their clients and tenants” while broadening the tax base beyond employees.

Fiscal gap remains wide

Despite the £6bn expected from the income tax-NI switch, the think tank estimates Reeves will need to find £20bn in additional tax rises by 2029-30 to stabilise the public finances. Some analysts warn the figure could be as high as £51bn, citing higher borrowing costs, weak growth and Labour’s new spending pledges.

“The chancellor should do all she can to avoid loading further pain onto workers’ pay packets,” Corlett added. “She can do this by switching our tax base away from employee national insurance and onto income tax, which is paid by a far broader group in society.”

Divided political response

The proposals have already triggered debate within Westminster. While Labour ministers are determined to avoid breaking manifesto commitments, opposition MPs have warned that Reeves risks losing credibility with financial markets if she fails to raise enough revenue. Conservative critics have also accused the Government of preparing a “tax bombshell” for homeowners and small businesses.

Economists remain split on whether shifting the tax burden away from national insurance is the right approach. Supporters argue it would reduce distortions in the labour market and increase transparency, while opponents warn it could discourage savings and disproportionately affect older voters.

November Budget in focus

The Chancellor’s autumn statement is expected to be one of the most closely scrutinised Budgets in recent years, as investors, businesses and households wait for clarity on the scale of new tax rises. Reeves is under pressure not only to demonstrate fiscal discipline but also to show how Labour intends to fund investment in public services without undermining growth.

Analysts say the response to the Resolution Foundation’s call will be a key signal of how far Reeves is willing to go in reshaping the tax system – and how much political capital she is prepared to spend in the process.