The Institute for Fiscal Studies(IFS) has urged Rachel Reeves, the Chancellor of the Exchequer in the UK, to take advantage of the November budget to implement significant changes to the current tax system.
In a statement dated October 13, the think tank noted that this reform is important because it will enable Reeves to collect more funds while minimizing the negative economic effects.
Concerning the IFS’s advice to the chancellor, officials in the London-based research institute told Reeves not to increase the current tax rate to collect the extra funds she needs, which is approximately 30 billion pounds, equivalent to around $40 billion, to satisfy her goals for enhancing public finances.
“What we really do not want in November is the encouragement of aimless changes and half-hearted solutions,” said Isaac Delestre, a senior research economist at the IFS. Delestre views November’s budget as a chance for real progress. Therefore, he urges the chancellor to use this budget to establish a more sensible tax system.
Delestre urges Reeves to establish a more logical tax system
Earlier, Reeves and Keir Starmer, the Prime Minister of the United Kingdom, assured voters that they would not increase social security contributions, value-added tax, or income tax on employees. Additionally, they pledged not to raise the main tax on corporate profits.
Last year, the UK chancellor increased social security costs for employers. However, after increasing these expenses, Reeves still has options to consider for the upcoming budget on November 26. This includes taxes on wealth and property.
Regarding these considerations, the IFS pointed out that changing wealth-related taxes, such as capital gains tax, would be more impactful than adopting a new annual wealth tax. The think tank officials highlighted that they were aware some members of the ruling Labour Party opt for a new annual wealth tax.
On the other hand, the IFS urged transferring local property tax responsibilities to regions like London for property-related taxes. According to the think tank, these regions have recently experienced increased house prices, and the relevant authorities have removed the stamp duty tax on property purchases. The leader of Britain’s opposition Conservative Party expressed their great support for eliminating the stamp tax last week.
Apart from the IFS, another significant think tank, the National Institute of Economic and Social Research, commented on the topic of discussion. According to them, Reeves should focus on crucial matters, such as reassessing her earlier pledge not to increase employee taxes, rather than less important issues like finding effective methods to boost revenue.
Think tank officials call on Reeves to stick to her earlier commitment
Think tank officials call on Reeves to reconsider her earlier pledge not to raise taxes on working people because they believe this approach would be preferable to looking for other methods of raising revenue that could cause significant damage to the county’s economy.
Following this, the National Institute of Economic and Social Research stated that alternative ways to raise the £30 billion, equivalent to approximately $40 billion, that Reeves will need are too disruptive to the economy.
Meanwhile, in the UK, the government’s borrowing costs have risen more than expected. Moreover, a plan to save 5 billion pounds a year on welfare spending has been abandoned, and the country’s budget watchdog suggested that it might cut its growth forecasts.
Still, Starmer and Reeves have repeatedly said for months that they are determined to honour their pre-election commitments, including at last month’s annual Labour Party conference.
“A new wealth tax,” the NIESR added, citing a policy that some Labour lawmakers support, “is likely to reduce savings, increasing the cost of borrowing and discouraging investment.”
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