Reeves is urged to change tax laws ‘to raise over £20bn per year’

A left-of centre thinktank is urging Rachel Reeves to announce in the budget next month changes to capital gains, inheritance tax, and national insurance that would raise over £20bn per year for Treasury.

The Resolution Foundation, which is a non-profit organisation that promotes social justice and equality in society, said that the chancellor was looking to fill a £22bn hole in the public finances that she had identified. It has been a long-standing tradition that taxes are raised in the budget that follows an election.

The thinktank claimed that its proposals would raise huge sums of cash while still meeting the “triple test” of ensuring that the tax increases hit the better-off and not breaking Labour’s 2024 manifesto promises.

Reeves, along with Keir starmer, the Prime Minister, warned that “tough choices” would be required in the budget. The Treasury is also considering changes to the capital gains tax and inheritance tax.

Adam Corlett is a principal economist with the Resolution Foundation. He said that tax increases are an established tradition and a sure thing. The Labour manifesto contained £10bn in tax increases, but new ones will be required to allow Rachel Reeves enough funding for public services and investments while still meeting her fiscal rules.

Thinktank says taxes will go up, even if Reeves decides not to announce any new revenue-raising measures by 30 October. She inherited £24bn in tax increases left behind by her predecessor Jeremy Hunt – and has given no hint that these would be reversed.

The foundation also argues that a planned rise in fuel tax – which is on track to surpass 6p per litre by 2025 – should be maintained. It called on Reeves, however, to cancel the “damaging increase” in stamp duty that is due to take effect next April at a cost to £1.8bn.

The thinktank said that Reeves, in addition to reforms immediately of CGT, IHT, and national insurance (NI), should “get things moving” with important long-term tax reforms for business rates, Council Tax, and Road Pricing.

Corlett stated: “The chancellor has self-imposed restrictions on not increasing income tax, VAT or national insurance, if she does not want to violate manifesto commitments. There are several tax areas she should concentrate on.

The long overdue reforms of IHT, CGT, and pension contribution reliefs could fit the bill, and raise more than £20bn, if necessary, while making the tax system fair and consistent for different taxpayers.

The think tank said that up to £12bn could be raised annually from a CGT system “ripe for Reform” as the rates were “unjustifiably lower” than other types of income.

The proposal was to align CGT rates on shares and dividends, tax property capital gains as wages, introduce CGT exit fees when moving countries, and apply it at death. The rates of rental and dividend income taxes should be changed.

To reduce the impact, the changes should be balanced by reintroducing inflation indexing to create an investment rate that is tax-free and designed to encourage investments over the long term.

Reeves, according to the foundation, could raise an additional £9bn through employer NI levied on pension contributions. It said that by simultaneously abolishing NI for employees’ pension contributions, workers would be better off.

The think tank said that the chancellor must also close IHT loopholes which “allow the wealthy to avoid paying a fair share and undermine the public’s trust in tax”. The think-tank said that ending business and agricultural tax reliefs, and bringing pension funds into IHT could raise £2bn per year.