Rachel Reeves has been warned that she must slash taxes again before the next election if she breaks her key manifesto pledge and hikes them in the Budget.
The warning comes after the chancellor put the country on notice that manifesto-busting sweeping tax rises are coming later this month, saying during an unprecedented pre-Budget address that “we will all have to contribute”.
The Tony Blair Institute has now called for any major tax rises to be temporary, warning Labour should move to “targeted tax cuts” before the next election “once growth strengthens and public service reforms deliver results”.
The group also called for the chancellor to bring businesses who had been “bruised” by last year’s Budget “back onside” with measures that move beyond “the caution of the government’s first year in office”.
The Tony Blair Institute for Global Change (TBI) said any tax-raising measures must be paired with pro-business reforms that hard-wire growth into every major policy decision, making the UK a better place to invest, work and build.
It warns: “If the chancellor opts for a larger revenue-raising step – particularly a manifesto-breaching increase in income tax or value-added tax (VAT) – she should make clear that it is temporary and conditional: a short-term measure to stabilise the public finances, not a permanent shift in direction.”
It added that, as growth returns and public-sector reforms take effect, the priority should be to reverse these rises – “turning short-term discipline into the foundation for recovery and pre-election tax cuts”.
In its paper, the TBI said that planned changes to migration policy and employment rights risk damaging the UK’s flexible jobs market.
It urged ministers to retain the five-year route to permanent settlement for the skilled worker visa, instead of requiring migrants to spend a decade in the UK before being able to apply.
It also recommends expanding access and reducing the cost of the global talent visa, introducing a new “tech excellence” visa for engineers, founders and researchers, and creating a permanent key worker visa for shortage professions, such as construction and care.
Tom Smith, director of economic policy at the Tony Blair Institute, added: “The chancellor acknowledges she has tough choices to make. She cannot satisfy the markets, the party, business and voters all at once. The only way to do so over time is to put Britain back on the path to growth – and that means a new bargain between government and business.
“A credible Budget can’t just raise taxes – it must raise Britain’s sights. The government needs to show fiscal discipline, but also the confidence to back business.”
It comes as the CBI warned in a new report against “death by a thousand taxes” and said that “every decision” the chancellor takes had to help stimulate economic growth.
In its Budget submission to the Treasury, the organisation, which represents thousands of businesses, said “hard choices must be made – without leaving the door ajar to further unwelcome tax changes in Spring”.
It added: “Death by a thousand taxes is not a credible way to deliver a thriving, prosperous economy.”
It said nothing should be considered “off-the-table”, “including unpopular moves in areas like personal tax, public spending, welfare provision and pension increases.
They also called for the government to fast-track critical infrastructure and to use technology to modernise the economy.
Rain Newton-Smith, the chief executive of the CBI, said: “Yearly tinkering to close an ever-increasing fiscal gap simply isn’t a viable approach to a challenge this big.
“We need to take tough decisions now or risk a downward spiral that sees us robbing Peter to pay Paul just to fund normal government expenditure and puts our growth prospects in peril.
“Short-term thinking leads to long-term decline, let’s not make that a political choice we live to regret. “
She added that sticking rigidly to manifesto commitments “may be politically laudable, but it’s only economically viable if material conditions remain unchanged. The fact is, they are not. Tax rises and spending cuts are unpopular, but the reality is that the chancellor faces little choice.”
Reeves warned on Tuesday that “each of us must do our bit” and warned there were “hard choices” ahead. She signalled she is ready to break Labour’s flagship manifesto commitment not to raise income tax, personal national insurance or VAT.