Labour can raise £45bn without breaking its manifesto pledges says Morgan Stanley

The British government could raise up to £45 billion through moderate tax reforms without breaching Labour’s manifesto promises, according to a new analysis by investment bank Morgan Stanley. With Chancellor Rachel Reeves set to deliver her budget on 26 November, economists believe this fiscal boost would help close the UK’s budget hole without fuelling inflation or imposing significant new burdens on working households.

New revenue is expected from a combination of prudent measures. The continuation of the freeze on income tax thresholds for at least another year could push 100000 workers into the highest tax bracket and yield between £7–10 billion. Revising council tax bands which last underwent review in 1991 may also add several billion pounds annually to Treasury coffers. Introducing a gambling surcharge might generate another £3 billion whilst taxing dividends at the same rate as regular income could raise up to £6 billion.

A significant portion of new funds may result from pension reform. Capping tax relief on pension contributions and applying employee national insurance contributions at 13.8 per cent on pensions are projected to deliver around £4.5 billion each year. Removing loopholes in capital gains tax and national insurance contributions for certain income streams rounds out this multi-pronged approach.

Morgan Stanley analysts, led by chief UK economist Bruna Skarica, assert that these moves fit within Labour’s pledge not to increase VAT income tax or national insurance for working people. The suggested reforms are viewed as non-inflationary and sufficiently gradual to avoid shocking households or markets. Tax increases rather than spending cuts are now seen as the likely adjustment to keep within fiscal rules after ministers locked in spending plans up to 2029.

According to the analysis, day-to-day spending growth is expected to slow significantly from 3.8 per cent this year to 1.7 per cent next year and just 1 per cent by the end of the decade. With these steps the budget deficit could shrink by 1.3 percentage points in the 2026–27 financial year even without drastic new spending cuts.

The fiscal gap—estimated at £20 billion plus a further £10 billion for a safety margin—is attributed to weaker productivity forecasts and higher debt servicing costs. By focusing on a wide spread of moderate tax reforms Labour aims to preserve market confidence and maintain its economic credibility as it embarks on these reforms.