Resolution Foundation urges £30bn tax raid, including 2p income tax rise, as firms warn they can’t bear more pain

The Resolution Foundation, Labour’s favoured think tank, on Monday published a policy report urging a £30 billion tax raid on families and businesses and proposing a 2p rise in the basic rate of income tax that would break Labour’s manifesto pledge. The analysis argues that, with debt targets in view and borrowing conditions unsettled by market jitters, tax measures may be necessary to plug a fiscal hole ahead of the Budget. It also floated levies on everyday items—salt and sugar, crisps, chocolates—and broader measures, including a tax on long-haul flights and pensions, as part of a broader package designed to raise revenue while attempting to avoid deeper spending cuts.

The plan would raise about £30 billion through a mix of measures: a 2p rise in the basic rate of income tax; a salt-and-sugar levy estimated to raise about £3.5 billion; and new levies on items from salt-and-vinegar crisps to Dairy Milk bars, as well as targeted taxes on long-haul travel and pensions. The Foundation suggested that while these measures would be unpopular and would likely push up food inflation, they believed spending cuts alone would be insufficient to close the hole in the Budget. The report frames tax as playing a necessary role, saying, in effect, that there are few viable alternatives to reach a large sum in savings.

Reaction to the proposals underscored the political and business tensions surrounding any new tax agenda. Conservative figures quickly argued that the plan would risk choking growth and urged Labour to focus on cutting waste rather than raising taxes. Shadow chancellor Sir Mel Stride described the proposals as a troubling sign of what Labour ministers might plan for the Budget, noting that Reeves had already presided over substantial tax increases and warning that more could damage hard-working families and dampen growth. The opposition position reflects a broader tension inside UK politics about how to balance debt reduction with economic vitality.

Business groups also pushed back. The British Retail Consortium chief executive, Helen Dickinson, said retailers were still reeling from the higher costs introduced in last autumn’s Budget and cautioned that the next Budget should avoid imposing further costs that could fuel inflation. Anna Leach, chief economist at the Institute of Directors, said tax increases might be needed, but any Budget should be as tax-light as possible to avoid undermining growth. Commentary from business leaders outside Parliament has repeatedly warned that higher levies could push inflation higher and slow investment.

The debate comes as Britain’s finance chief faces pressure to meet debt targets while markets remain jittery about the sovereign’s finances. Reeves is under scrutiny to deliver a credible plan to shrink the deficit without derailing growth, and the Resolution Foundation’s report complicated the Budget calculus by arguing that tax measures, rather than spending cuts alone, could be required to fill the black hole. The foundation’s stance is notable given its influence on policy conversations and its historical ties to the current administration’s economic thinking, including former pensions minister Torsten Bell’s involvement in policy discussions ahead of November’s Budget.

The report also downplayed the likelihood that deep spending cuts could compensate for the hole, saying that “so tax must play a role.” In the context of recent warnings from several business leaders that the economy is fragile and that higher taxes could jeopardize growth, the piece adds to a broader debate about how to balance fiscal consolidation with the need to keep the economy competitive. Critics argue that continuing to rely on tax hikes risks a stagflationary outcome, while supporters contend that higher revenues are essential for stabilizing public finances in the medium term.

As Budget negotiations loom, pressure on Chancellor Rachel Reeves is expected to mount from both sides of the aisle and from business groups worried about the cumulative impact of higher taxes on prices and on investment. The Resolution Foundation’s call for strategic tax changes—especially the 2p income tax rise and cryptocurrency-like variety of levies—will likely shape conversations among policymakers about how to close the fiscal gap while avoiding unnecessary harm to growth. The debate is set to intensify as Labour faces the challenge of delivering a credible long-term plan that aligns with its political commitments and the views of the business community.