The National Institute of Economic and Social Research (NIESR) has called for significant tax increases in the upcoming Autumn Budget, scheduled for November 26, 2023. The influential economic think tank warned that Chancellor Rachel Reeves faces a daunting challenge in addressing a projected £50 billion shortfall in the UK’s public finances. NIESR suggests that to begin closing this gap, a minimum increase of 2 pence to the basic rate of income tax may be necessary.
NIESR’s analysis indicates that Reeves is on track to miss one of her fiscal targets by approximately £38.2 billion by the fiscal year 2029-30. The institute emphasized that rather than making minor adjustments to existing tax bands, a more straightforward approach—raising the basic income tax rate—could provide the needed financial relief.
Stephen Millard, NIESR’s deputy director for Macroeconomics, stated that Reeves will need to make “brave choices” in her fiscal policy. He remarked, “She will likely need to break her manifesto pledge by raising income tax—rather than attempting to fill the gap by messing around with lots of changes to marginal taxes—as this would be the least bad option for the economy.”
According to NIESR, implementing a 2p rise on the current 20% basic income tax rate could generate around an additional £20 billion. Furthermore, a 5p increase on the 40% higher rate of income tax could yield an extra £10 billion, while increasing the upper band by a similar amount could bring in about £500 million.
The institute advocates for a combination of tax increases and spending cuts to restore the UK economy and public finances to a stable condition. This approach, they argue, will allow the government to better focus on achieving higher economic growth and improving living standards across the nation.
David Aikman, a director at NIESR, emphasized the need for political determination to implement these changes. He noted, “The economics are clear; what is required now is political will—the readiness to take difficult decisions on tax and spending in this Budget in the long-term interests of the UK economy.”
As the Chancellor prepares for the upcoming budget announcement, the recommendations from NIESR highlight a critical juncture in economic policy, with the potential for significant implications for taxpayers and the broader economy.
