Chancellor Rachel Reeves faces mounting pressure to implement radical tax reforms that would see pensioners and landlords shoulder a greater tax burden whilst protecting working-age Britons, according to proposals from the influential Resolution Foundation think tank published ahead of November’s crucial autumn Budget.
The Labour-linked economic research organisation has called for a two percentage point cut to employee National Insurance matched by an equivalent rise in income tax, a move that would raise £6 billion annually for the Treasury whilst leaving workers’ take-home pay unchanged. The proposal comes as Ms Reeves grapples with a fiscal challenge that economists estimate could require up to £51 billion in additional revenue by 2029-30.
Adam Corlett, principal economist at the Resolution Foundation, said the reforms would address what the think tank characterises as an “unfair double tax on work” whilst broadening the tax base to include pensioners, landlords, and self-employed workers who currently pay no employee National Insurance contributions.
“Any tax rises are likely to be painful but given the fallout from the recent employer NI rise, the Chancellor should do all she can to avoid loading further pain onto workers’ pay packets,” Mr Corlett stated. “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.”
The Resolution Foundation’s ties to senior government figures have intensified speculation about the proposals’ influence on policy. Treasury Minister Torsten Bell, who was appointed Parliamentary Secretary to the Treasury and Parliamentary Under-Secretary of State for Pensions in January 2025, served as the think tank’s chief executive from 2015 to 2024. Mr Bell has been tasked with helping Ms Reeves address what Labour has described as a “black hole” in Britain’s public finances ahead of the 26 November Budget.
The proposed tax shift represents just one element of a broader package of revenue-raising measures suggested by the Resolution Foundation. The think tank has also recommended gradually lowering the VAT registration threshold from £90,000 to £30,000, which it estimates could generate £2 billion annually by 2029-30 whilst promoting “fair competition” amongst businesses.
Additional proposals include extending employer National Insurance contributions to limited liability partnerships, which would affect large law firms, and introducing carbon levies on international flights and shipping. The think tank has also called for expanded taxation on sugar and salt, alongside increases to dividend taxation.
These sensible reforms would raise revenue while doing the least possible harm to workers and the wider economy,” Mr Corlett explained. “And by acting decisively, the Chancellor can turn her attention back onto securing stronger economic growth.”
The timing of these proposals is particularly sensitive, coming as new Financial Conduct Authority data reveals pension savers withdrew a record £70.9 billion from their retirement pots in 2024-25, marking a surge of 36 per cent compared with £52.2 billion the previous year. Nearly one million pension plans were accessed for the first time during the period, with financial experts suggesting speculation about potential tax changes may have influenced withdrawal decisions.
Rachel Vahey, head of public policy at AJ Bell, expressed concern about the trend: “The concern is people aren’t making decisions based on what’s best for them but because they are worried about possible changes to pensions tax incentives.”
The Resolution Foundation estimates Ms Reeves will need to raise at least £20 billion in additional tax revenue by 2029-30 to meet her fiscal rules whilst maintaining spending commitments. This figure accounts for higher borrowing costs, lacklustre productivity growth, and new spending pressures. Some analysts have suggested the actual requirement could be as high as £51 billion.
The proposals have emerged against a backdrop of considerable economic pressure. UK government borrowing costs recently hit a 27-year high, with 30-year gilt yields reaching levels not seen since 1998. These elevated borrowing costs have intensified scrutiny on the Chancellor’s ability to balance the books whilst honouring Labour’s manifesto pledge not to raise income tax, National Insurance, or VAT on working people.
A Treasury spokesperson declined to comment on specific tax proposals, stating: “The Chancellor makes tax policy decisions at fiscal events. We do not comment on speculation around future changes to tax policy.”
The Resolution Foundation has also urged the government to address what it describes as a “worrying” growth in unpaid corporation tax from small businesses, estimated to cost the Treasury approximately £15 billion annually. The think tank suggests this tax avoidance represents a significant opportunity for revenue generation through improved compliance measures.
Industry groups have already begun mobilising against potential tax changes. The Scotch Whisky Association, UK Spirits Alliance, and other alcohol industry bodies have written an open letter to Ms Reeves urging her to freeze alcohol duty, describing the current regime as “unfair” and warning of strain on businesses that are “struggling.”
Meanwhile, the British Retail Consortium has cautioned that further tax rises on the retail sector could push food inflation above 5 per cent into next year, potentially affecting consumer prices at a time when households are already facing cost-of-living pressures.
Former pensions minister Sir Steve Webb, now a partner at pensions consultants LCP, criticised the uncertainty surrounding pension taxation: “Given that pensions should be a long-term business, it is deeply disappointing that consumer behaviour is being driven so profoundly by uncertainty around public policy.”
The Chancellor faces what the National Institute of Economic and Social Research has described as an “impossible trilemma” of meeting fiscal rules, fulfilling spending commitments, and upholding manifesto pledges on taxation. Economic think tank Capital Economics suggests Ms Reeves will need to raise between £18 billion and £28 billion primarily through higher taxes.
Ruth Gregory, deputy chief UK economist at Capital Economics, noted: “A tax increase that raises a lot of revenue, is politically palatable and improves the economic outlook has long been the holy grail of governments. But that will remain elusive.”
The Resolution Foundation’s intervention adds to growing pressure on Ms Reeves ahead of the autumn Budget. With the Office for Budget Responsibility set to deliver updated economic forecasts alongside the Chancellor’s statement, any deviation from fiscal targets could force difficult decisions on taxation and spending.
As 26 November approaches, the debate over tax reform intensifies, with the Resolution Foundation’s proposals highlighting the fundamental choices facing the government: whether to maintain the current tax structure that places a heavier burden on working-age employees, or to implement reforms that spread taxation more broadly across society, including to wealthier pensioners and property owners.
The Chancellor’s decision will have far-reaching implications for millions of Britons and could define Labour’s economic strategy for the remainder of the parliament.
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Image Credit:
Prime Minister Keir Starmer and Chancellor Rachel Reeves visit Jaguar Land Rover, Solihull (7 April 2025) — photo by Lauren Hurley / No 10 Downing Street, licensed CC BY 2.0.
