Calls for radical tax shift ahead of Budget
Rachel Reeves, the Chancellor, is under mounting pressure to raise billions through a sweeping tax overhaul targeting pensioners, landlords and the self-employed.
The influential Resolution Foundation, which has close ties to Labour’s top team, has urged Ms Reeves to cut 2p from National Insurance (NI) and transfer the levy onto income tax. The proposal would generate around £6bn annually while sparing most working-age employees, the think tank said.
With the Budget only two months away, Ms Reeves is wrestling with a £20bn hole in the public finances, higher borrowing costs, and market concerns over Britain’s £2.9 trillion national debt.
Who would be affected?
The shift would have little impact on “working people” those paying both income tax and NI but it would significantly raise bills for groups currently outside NI contributions.
That includes:
- 8.7 million pensioners already paying income tax
- 4.3 million self-employed workers
- Landlords and property owners
The Resolution Foundation argued that the change would “level the playing field” by ensuring those outside the NI system contributed more fairly.
Think tank’s influence on Labour policy
The foundation’s proposals carry weight. Many of Labour’s top economic advisers are alumni, including Torsten Bell, now a minister at the Department for Work and Pensions, and Dan Tomlinson, exchequer secretary to the Treasury.
Its ideas have previously shaped Labour policy, such as taxing unspent pension pots and reducing inheritance tax reliefs. Baroness Shafik, the Prime Minister’s newly appointed economic adviser, also chaired a major Resolution Foundation commission in 2023.
Economist Adam Corlett said: “Policy U-turns, higher borrowing costs and lower productivity growth mean that the Chancellor will need to act. Any tax rises are likely to be painful but this switch would do the least possible harm to workers.”
Pensioners in the firing line
The move would be especially painful for retirees. With the state pension set to rise to £12,536 next year under the triple lock, just below the £12,570 tax-free threshold, many pensioners will already be dragged into the tax net.
Those with even modest private pensions or additional income above £34 a year could face further tax bills.
Former pensions minister Baroness Altmann warned the plan risked fuelling resentment between generations: “The clear agenda seems to be to take more money from those who are not employees… making life harder for pensioners.”
Wider tax proposals
The Resolution Foundation’s blueprint goes far beyond pensions. It also recommends:
- £6.5bn from raising taxes on small businesses and high earners in partnerships
- £3.5bn from new sugar and salt levies
- £4bn from higher duties on flights, shipping and electric vehicles
Combined, the package could generate £30bn a year to rebuild Britain’s fiscal buffer.
The think tank also called on Ms Reeves to maintain the Conservatives’ freeze on income tax thresholds until at least 2027, raising an extra £7.5bn annually.
Fierce backlash from business and opposition
Retailers warned the measures risk worsening inflation. The British Retail Consortium said higher business taxes could push food price inflation towards 6% by year-end, with supermarkets forced to pass costs onto customers.
Chief executive Helen Dickinson cautioned: “The biggest risk to food prices would be to include large shops in the new surtax on big properties. This would be robbing Peter to pay Paul.”
The Conservatives also seized on the proposals. Shadow business secretary Andrew Griffith said: “Families can’t afford for the cost of their weekly shop to keep rising. Labour’s tax-and-spend doom loop is wrecking our economy and making ordinary people worse off.”
What’s next?
The Chancellor has promised not to raise headline rates of income tax, VAT or NI. However, the Resolution Foundation insists that shifting NI into income tax would stay within the “spirit” of Labour’s manifesto while raising much-needed revenue.
Whether Ms Reeves embraces the call will be revealed in her first Budget but with Britain’s debt burden rising and fiscal space shrinking, pressure for bold action is only growing.
Final Summary
Think tank urges £6bn tax raid on pensioners.
Resolution Foundation proposals raise pressure on Rachel Reeves as she prepares her first Budget, with warnings of inter-generational tensions and rising inflation.
