Rachel Reeves MUST cut taxes this Autumn

With the Autumn budget looming in the near distance, and fear abounding over the inevitable threat of yet more tax rises being imposed by this banal and clueless Labour government, postulations are rife amongst commentators regarding exactly which areas will be hit the hardest.

Ideas floated by Treasury thinktanks include changes to Capital Gains Tax, ISAs, pensions, and even the possibility of raising Income Tax or National Insurance, in what would represent a clear breach of Labour’s cast iron manifesto pledges.

Rachel Reeves has already proven herself to be hideously out of her depth in her role. A Chancellor without a background in Finance, or who has never run a business, thrust into a position she is palpably underqualified for. She has already tried to balance the public finances through tax rises last Autumn, with a disastrous first budget in office that has been proven to have increased unemployment, scared away our wealth creators, discouraged investment, led to many businesses being forced to close, increased the fiscal black hole to an estimated £40bn, and utterly failed to get any growth into our flailing economy.

If the chancellors’ first budget proved anything, it is that the old adage still rings true: You cannot tax your way to growth. And yet despite this abject failure in her first attempt, it seems almost certain that she will try again with the same tactic this time round.

Hamstrung by her own (completely justified) red lines with regard to increasing government borrowing, and battling against her own MPs who are entirely unwilling to sanction any kind of cuts to public spending, she believes that her only option is to once again raise taxes to plug the holes in the country’s books.

But there is another option, and one that she absolutely MUST turn to if she wants to get our economy growing again:

Rachel Reeves must cut taxes.

Obviously, any tax cuts announced at a time when public spending pressures are so extreme and the economy is in such a dire state must be accompanied by detail on how they will be funded, lest she find herself imitating the fiasco of the Liz Truss mini budget. But there are plenty of ways in which tax cuts can and will stimulate consumer spending, and by consequence economic growth, and lead to more money flowing into the treasury coffers.

Here are my recommendations for the tax cuts that Rachel Reeves should include in her next budget:

1. Reverse the hike in Employer’s National Insurance (cost: £16bn)

Reversing the disastrous increase in Ers NI that Reeves implemented at her last budget should be step 1. This tax increase is directly responsible for the stalling jobs market and increase in unemployment that we have seen over the past year. Higher employment costs lumped on businesses have led many to close completely, increasing the strain on the welfare bill and stifling growth and new job opportunities. A lack of jobs, coupled with bloated unemployment, has also suppressed wages.

The government has tried to gaslight the public with claims that wage growth is up. But overall figures for wage growth are masked by the staggering public sector pay rises that Labour issued immediately upon taking power. So, whilst taxpayer funded public sector wages have risen significantly, tax-generating wages in the private sector are down, driven by business closures and fewer new job opportunities, with the supply of jobs being outstripped by demand.

Whilst the government initially estimated that the increase in Ers NI it implemented last November would generate £25bn for the treasury, hiring downturns, business closures, and the increased cost of welfare that have resulted from this policy have led to a downward revision of these estimates. Reversing this terrible tax hike on businesses would therefore cost the treasury approx. £16bn, based on conservative figures from the OBR. However, the growth that it would generate and the turnaround in the jobs market would go a long way to offsetting this.

2. Reduce VAT to 17% (cost: £15bn)

Economics doesn’t always have to be complicated. A basic undeniable premise remains, that if you make goods cheaper, people will buy more of them.

Reducing VAT makes goods cheaper. This means more people can afford them, so they buy more. This increased spending boosts business profits, stimulates economic growth, and brings in more money to the treasury.

During the 2008 recession, the Labour government of the time reduced VAT from 17.5% to 15%, in an effort to encourage spending and boost economic growth. It worked.

Increasing spending is a key tenement of getting an economy growing. Reducing VAT, even temporarily, could therefore be a key tool to get our economy moving forward again in 2026.

The estimated cost of reducing VAT from 20% to 17% would be £15bn, according to treasury analysis.

3. Cut green levies on business energy bills (cost £4.5bn)

Business in the UK has been hammered on multiple fronts since Labour came to power. We’ve already talked about the hike in employment costs, but soaring energy costs (despite Labour’s pre-election promise to reduce energy bills) have also put businesses under enormous pressure.

It is imperative that the chancellor starts to support businesses in a much more profound and tangible way, if she wants to halt the rise in business closures and unemployment, and encourage investment.

Tackling the cost of energy would be invaluable to British business. Currently, green levies (which include renewables obligation, contracts for difference, feed-in tariffs, capacity market, and the climate change levy) account for 15%-20% of business electricity bills. Eliminating this burden on business, even temporarily, would therefore make a real, tangible difference to business energy costs.

The cost to the treasury of removing green levies on energy for business would be approximately £4.5bn per year. This, again, would however be partially offset by increased business productivity and performance, and job creation.

4. Scrap the 45% income tax rate

   
   

One feature of the economic landscape since Labour came to power in 2024 has been the outward migration of high earners from the UK. Unwilling to be burdened by wealth taxes, and driven away by the abolition of non-dom status in UK tax law, many of our best and brightest have fled our shores, taking with them their investment, their tax contributions, and a great deal of innovation and entrepreneurialism.

This trend must be reversed. If we want to be world leaders in innovation and commerce, we need our best brains to stay in Britain. One way of encouraging this would be to reduce the tax burden that our top earners face, by scrapping the top rate of income tax. This currently sits at 45% on earnings over £125,000.

This might not be the most popular policy with the masses, and would be a very “un-Labour” thing to do. But the reality is that this top rate of tax doesn’t actually bring in a substantial amount of money to the treasury, because of the relatively low number of people who pay it (approximately £2bn per year).

However, what this change would do is send a message to wealth creators… We want you here in Britain. Entrepreneurs and business owners should be encouraged and rewarded, not punished. Adopting a policy that does not come easily to those on the left (a perceived tax break for the richest), would help to retain some of those who have left, or are considering leaving this country.

5.  Raise the personal income tax allowance to £15,000pa

In order to offset the inevitable disquiet amongst hard left Labour members and MPs that would arise from scrapping the 45p tax rate, the chancellor could take a corresponding initiative aimed at putting more money into the pockets of lower and middle earners. She could, for the first time since 2019, increase the income tax personal allowance from its current rate of £12,570.

Indeed, I would contend that this increase should be substantial, and that she should increase it by £2,500 a year, to £15,000. Such a move would not come cheap, as far as the treasury is concerned. But politically, it would send some important messages to voters: (i). We want to help you with the cost of living; and (ii). You will be better off in work than on benefits.

These are important messages for the government to be sending to a public who perceive that priority is given to providing care and comfort to illegal immigrants than to our own people, as evidenced by an approval rating of -50 in the polls. But also, it would financially benefit a large section of society in a very tangible way.

To raise the personal allowance by such a substantial amount would cost the treasury approximately £17.4bn per year. As such, this is the most expensive tax cutting measure on our list, largely due to the sheer number of people who would benefit from it. Again though, if people have more then they spend more, so such a measure could be a key driver of economic growth.

TOTAL COST OF TAX CUTS = £55 BILLION

So, there we have it… a series of tax cuts designed to put more money into the pockets of working people, to incentivize investment and job creation, and to inject growth into our stagnant economy. And all at a total combined cost to the treasury in the region of £55bn per year.

But how can such generous tax cuts be afforded, I hear you ask. It won’t surprise you to hear that there are a vast array of options that remain untapped by this Labour government, that would avoid both the need to increase borrowing, or having to raise taxes elsewhere to fund the cuts outlined. It can even be achieved without having to cut a single penny in public spending. Here’s how…

1.  Scale back Net Zero commitments (£8bn)

As has been said many times previous in this blog, the UK simply cannot afford the cost of transition to net zero by 2050. The target date is arbitrary, the cost of infrastructure adjustment is massive, the technology to achieve the transition does not yet exist, and the benefits to the global climate of the UK achieving net zero are immaterial (given the UK accounts for less than 1% of global emissions).

And yet, the annual budget for Ed Milliband’s Department for Energy Security and Net Zero stands at approximately £10-£12 billion, intended to cover energy transition, carbon capture (an unproven technology), and green infrastructure changes. The planned spend over the next 5 years on net zero-specific initiatives is £59bn, an average of £12bn per year.

A significant reduction in this expenditure could free up considerable resources, whilst allowing the UK to continue a sensible and affordable transition towards lower total emissions, over a more realistic timeframe.

I would therefore divert £8bn annually of planned expenditure away from the net zero white elephant, and use it to partially fund tax cuts to help boost economic growth, leaving Ed Milliband with a very generous £4bn per year to fritter away on his frivolous net zero vanity projects.

2.  Cuts to public sector pension contributions (£42bn)

Here’s the big one. Another area that we have talked about at length in previous posts, is the staggering cost to the taxpayer of funding public sector pensions. What we mean here, is the “employers” pension contributions that are paid by the government into the pension pots of public sector workers, based on a % of their salary.

The employers’ contribution rates for public sector workers are eye-watering compared with those of the private sector. Whereas a private sector worker might expect their employer to contribute typically in the region of 4-5% of their gross salary towards their pension (although some companies will pay a higher percentage), in the public sector, this rate can be approaching 30% of annual salary.

At a time when public sector workers are increasingly demanding pay parity with their private sector equivalents, the justification for maintaining such high levels of taxpayer-funded pension contributions seems more and more flimsy.

Public sector workers can’t have it both ways… they can’t spend their working life perpetually on strike whilst demanding pay rises that align their earnings with the private sector, and simultaneously expecting to retain the gold-plated pension and benefits packages that only the public sector offers.

Government employer contribution rates averaged 28.6% of pensionable pay across main unfunded schemes in 2023/24 (up from 23-25% in the prior year). Applied to a public sector paybill of c. £250-£300 billion annually, this equates to taxpayer funded employer contributions of £70-£85 billion pa.

Specific examples of excessive contribution rates include the Civil Service, where the employer rate has been 28.6% since April 2022, and the NHS with an average 23.7-24.8% rate in 2024/25.

Aligning public sector pensions to private sector rates would be a complex exercise, including having to navigate legal protections for pensions promises, and with the expectation that accrued rights for existing pension scheme members would be protected (i.e. any changes would only apply to new members moving forwards, and not retrospectively impact existing members). It would also likely mean shifting to a Defined Contribution model, or significantly reducing Defined Benefit generosity.

However, the savings that could be generated by reducing average public sector pay rates by half (which would provide an employers contribution rate in excess of 14%, still significantly higher than average private sector contribution rates of c. 6%) could save the treasury in excess of £42bn per year.

3.  Limit child benefit to households earning less than £30k per year (£11.2bn)

Child Benefit is a universal payment made by the UK government to help with the costs of raising children. There is no means test for eligibility, but a High Income Child Benefit Charge (HICBC) claws back payments from higher earners (households earning £60,000 or higher). It supports around 7.7 million families with about 12.8 million children, with no limit on the number of children per family, and payments are fully withdrawn for households with an annual income in excess of £80,000. I believe this threshold is far too high.

Total Child Benefit expenditure in 2024/24 was £12.8 billion, paid to 7.7 million families covering 12.8 million children. 80% of families (6.16 million) earn above £30,000, covering c. 80% of eligible children (approx. 10.24 million).

Therefore, by means testing child benefit and limiting eligibility to households earning less than £30,000 per year, the treasury could save in the region of £11.2bn per year.

Child Benefit is one of a very small number of universal benefits that are offered, and at a time when the cost of living continues to bite hard on the British public, we need to be challenging whether the treasury can continue to justify paying universal benefits of any kind.

To my mind, state support should only ever extend to those who really need it, and as such, means testing of child benefit is not only justified but (given the scale of savings that could be achieved by doing so) entirely necessary.

4.  Cutting the cost of asylum claim support (£4bn)

How could we complete a piece on potential savings for the treasury without addressing the excessive cost of support for asylum seekers / illegal immigrants?

The UK government's spending on asylum support primarily covers accommodation (e.g., hotels, dispersal housing), subsistence allowances, and related costs for asylum seekers awaiting decisions, such as taxpayer funded legal aid. This is managed by the Home Office and forms part of the broader Official Development Assistance (ODA) budget.

Despite promising to reduce the asylum backlog, end the use of migrant hotels, and “smash the gangs”, small boat arrivals have risen this year under Labour. This represents a cost to the taxpayer in excess of £4bn per year.

Were the government to enact emergency powers to remove all incentives, deport all illegal arrivals, and deploy the navy to stop channel crossings, this cost could be reduced or completely eliminated very quickly.

TOTAL TREASURY SAVINGS = £65 BILLION

I have outlined 4 measures that could comfortably fund the £55bn of tax cuts that I believe should be a key feature of Rachel Reeves’ budget on 26^th November. These proposals even allow for £10bn of additional headroom that Reeves has stated she desires as a contingency for any measures implemented. And she wouldn’t even have to go grovelling to her backbenchers to plead for their permission to cut welfare spending either.

I don’t hold much optimism that our underqualified, clueless chancellor will consider any of the measures outlined above. She will undoubtedly bow to the banal and repetitive machinations of her left-wing treasury thinktanks, whose lack of innovative thinking results only in proposals that consist of hammering high earners and businesses with ever increasing tax hikes.

But we have shown here that there is an alternative. That the chancellor could, if she chooses, take an approach that incentivises job creation, puts more money into taxpayers’ pockets, encourages spending and stimulates economic growth. If instead, as I consider likely, she chooses to walk again down the path of tax rises, then the blame will lie squarely at her door when the OBR growth forecasts for our economy are once again downgraded over the coming months.