UK Budget pressure grows as tax proposals loom and OECD flags inflation risk
Observers say the November Budget could include further tax rises that would impact pensioners, landlords and small businesses, even as the OECD cautions on inflation and growth.
LONDON — A November Budget is expected to include additional tax increases, potentially totaling £20-£30 billion, as the government seeks to shore up public finances amid stubborn inflation and slower growth. Chancellor Rachel Reeves has repeatedly argued she would not pursue further tax rises, but officials and analysts say a significant new round of revenue-raising measures is likely in the face of a widening fiscal gap.
A prominent left-leaning think tank, the Resolution Foundation, has floated a package centered on a two-percentage-point rise in the basic rate of income tax to 22%, offset by a two-point cut in employee National Insurance contributions. It would also freeze income tax thresholds for two more years, raising about £7.5 billion a year. The foundation’s leadership and its alumni have moved into influential positions in Labour’s policy circle: Torsten Bell, the former foundation head now serving as Work and Pensions minister; Dan Tomlinson, a Treasury minister who previously worked at the foundation; and Minouche Shafik, who chairs a flagship Resolution Foundation report and now serves as Starmer’s economic adviser. The Office for Budget Responsibility, chaired by Richard Hughes (a former foundation affiliate), would assess any proposals once they are tested against the numbers.
The foundation’s plan also calls for new levies on sugar and salt, and on flights, shipping and electric vehicles, aiming to extract roughly £13.5 billion from these sectors. In total, the package would raise about £6.5 billion from small businesses, £3.5 billion from the proposed sugar-and-salt taxes, and around £4 billion from transport and consumer-energy measures. Critics argue such a mix would hit pensioners and landlords, as well as the self-employed, at a time when the housing market and enterprise are slowing. They say higher taxes could dampen investment and housing supply just as the economy needs more rental accommodation and entrepreneurial activity.
Beyond the policy proposals, the debate unfolds against a backdrop of the Organisation for Economic Co-operation and Development’s warning that inflation remains stubbornly high while growth falters in the United Kingdom. The OECD recently nudged its growth outlook higher for this year to roughly 1.4%, but cautioned that expansion is likely to slow to around 1% next year. It also projected inflation to average about 3.5% this year, with near-term readings around 4%, driven by elevated food prices and energy costs. The OECD’s assessment reinforces the pressure on policymakers to weigh tax-raising moves against their potential to curb living standards and slow a fragile recovery.
Public-finance challenges compound the debate. Reeves faces a sizeable fiscal hole that many analysts say is of her own making, and there is little appetite to pursue rapid, large-scale spending cuts. Public-sector productivity has fallen about 5% since 2019, and the NHS is estimated to be roughly 20% less productive than before the pandemic despite substantial funding. A separate accounting shows the number of human resources professionals has grown from around 300,000 to more than 450,000, a trend attributed in part to rising regulatory requirements. In the financial sector, compliance costs have surged to about £40 billion a year over the past five years, a reminder that new regulation can entrench costs even as the economy needs growth. Advocates of a productivity push argue that meaningful gains would require reforms that challenge entrenched interests and the public-sector unions that fund Labour’s operation, a political reality that has complicated past efforts to rebalance the public sector.
Looking ahead, observers say some form of tax increases is likely in November, but the size and shape of any measures will depend on political calculations and the evolving economic picture. The Resolution Foundation’s proposals have attracted attention for their ambition, but many economists caution that higher taxes must be paired with steps to raise productivity if inflation is to come down without undermining growth. As the Budget process unfolds, the government faces the challenge of balancing the urgent need to address debt with the goal of sustaining investment and living standards in a slowing, high-cost environment.