The report warns that a combination of policy U-turns since the last Budget, higher borrowing costs and a likely downgrade in productivity growth mean major fiscal consolidation will be needed to meet the government’s own rules. With spending commitments locked in over the summer, that consolidation will largely have to come from tax rises.
The Foundation argues the Chancellor must send a clear signal to the markets that she is prepared to take tough decisions, which could mean raising at least £20 billion a year by 2029–30. A key principle, it says, should be protecting workers by reducing the “unfair double tax” on employment caused by both NI and IT.
Shifting part of the tax burden from NI to IT would target groups currently outside the NI system including pensioners, landlords and the self-employed while raising £6 billion. Extending employer NI to Limited Liability Partnerships and increasing the basic rate of dividend taxation from 8.75% could generate a further £2.5 billion.
Other measures could include tackling the sharp rise in unpaid Corporation Tax among small businesses, which has trebled from £5 billion in 2018–19 to £15 billion in 2023–24. Partially reversing this trend could raise £2 billion. The UK’s high VAT threshold of £90,000 nearly twice the OECD average should also be gradually reduced to £30,000, raising another £2 billion a year by the end of the decade.
The report recommends further reforms to support public health and climate goals. A proposed Sugar and Salt Reformulation Tax could generate £3.5 billion annually by 2029–30, funding the removal of the two-child limit on welfare. A carbon levy on long-haul flights and shipping, alongside a reformed Vehicle Excise Duty accounting for heavier vehicles, could add £4 billion more.
Adam Corlett, Principal Economist at the Resolution Foundation, said:
“Policy U-turns, higher borrowing costs and lower productivity growth mean the Chancellor will need to act decisively this autumn. Significant tax rises are unavoidable if borrowing costs are to be contained.
“Any rises will be painful, but shifting the burden from National Insurance to Income Tax spreads the load more fairly across society. These reforms would raise the revenue required while minimising harm to workers and the wider economy. By acting decisively, the Chancellor can then refocus on securing stronger growth.”
