Any significant tax increases proposed by Rachel Reeves must be “temporary” and paired with reforms to aid businesses “bruised” by the last Budget, Sir Tony Blair’s think tank has warned.
A report from the Tony Blair Institute (TBI) has called on the chancellor to “bring businesses back onside” by moving beyond “the caution of the government’s first year in office” in her upcoming November 26 Budget.
Ms Reeves has already fuelled expectations of higher taxes by refusing to commit to maintaining Labour’s manifesto promises not to hike income tax, national insurance, or VAT.
The TBI insists that any such measures must be accompanied by bold, growth-boosting, pro-business reforms.
These, it argues, are essential to “break Britain’s tax-and-spend doom loop” and allow the government to roll back the tax rises as the economy improves.
It rejected the government’s proposal of giving workers “day one” protection against unfair dismissal, recommending instead a six-month qualifying period.
In its paper, the TBI backed “decisive” action such as hiking a major revenue-raising levy instead of more incrementalism that “creates pain but rarely momentum”.
“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,” the TBI said.
Once growth strengthens and public service reforms deliver results, taxpayers should see “targeted tax cuts before the election”.
Ms Reeves should announce a “big initial wave of pro-business reforms” at the Budget, the TBI argued.
Welcome reforms already implemented by ministers, such as in planning, have often been “offset” by “contradictory measures” elsewhere such as the rise in employer national insurance.
“Businesses, still bruised by last year’s tax increases, want a clear signal that the government will prioritise enterprise, stability and delivery,” the Labour former prime minister’s think tank said, adding that the Chancellor must “chart a course to national renewal” that brings them “back onside”.
“Achieving that will require tough, politically costly decisions that signal a clear change in direction and a move beyond the caution of the government’s first year in office.”
The TBI warned 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.
Other TBI recommendations include:
- 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;
- Simplifying employment protection for high earners;
- Replacing fuel duty with road pricing;
- Abolishing stamp duty on shares and introducing a government loan to spread the cost of stamp duty on property transactions over 20 years.
To tackle soaring benefits bill, the think tank said ministers should create a “preventative welfare” programme that invests planned future welfare payments into NHS treatments such as talking therapy, digital physiotherapy and new obesity treatments such as Ozempic.
The Labour government sought to restrict eligibility to personal independence payment (Pip) earlier this year, but its welfare reforms were watered down after a backbench revolt.
TBI director of economic policy Tom Smith said: “This Budget demands a clear break from the past year — a step change that makes growth the purpose of government, not one objective among many.
“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.
“Only a bold, pro-enterprise plan can lift living standards, strengthen the public finances and give the government the fiscal room for the changes voters want. Progressive policy tomorrow demands a pro-business growth plan today.”
Asked about the TBI’s recommendations, the Treasury pointed to the Chancellor’s pre-Budget speech on Tuesday, in which she said she would “do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity, and to ensure that the economy that we hand down to future generations is secure, with debt under control”.