The 2025 budget and beyond: How Rachel Reeves can approach tax reform to help drive growth

Any chancellor’s first budget is a big moment. But Rachel Reeves’s October 2024 event – the first from a Labour-run Treasury in almost 25 years – was particularly so, as she announced a big expansion in day-to-day spending, enabled by a big overall tax rise. At the time that was pitched as the last of the parliament. That now appears unlikely. 

Further tax increases are now widely expected in a late November budget that has the potential to be an even bigger, and perhaps more defining, moment in Reeves’s time in No.11. 

While the budget is a natural focus point for any chancellor, genuine reform, that has the potential to make lasting changes to UK’s economic outlook, cannot be announced at the dispatch box on a Wednesday in autumn. This Insight examines the fiscal situation facing Reeves and highlights lessons from past Institute for Government work on why she should – and how she can – deliver more substantive tax reforms this parliament.

The chancellor finds herself increasingly short of options

Reeves finds herself in a triple-bind. Reports that the Office for Budget Responsibility (OBR) is likely to downgrade its growth forecast mean she will need to raise additional revenue to stay within her fiscal rules. ⁵⁹ Islam F, ‘We are heading for significant tax rises’, BBC News, 12 July 2025, retrieved September 2025, www.bbc.co.uk/news/articles/c9dgn647nplo  With departmental spending settled in June’s spending review, and the chancellor’s attempts at welfare reform to plug the gap faltering, this almost certainly means further tax increases. 

In large part, the deterioration in the public finances is because growth – the target of the government’s primary mission – remains weak, and the government faces significantly higher borrowing costs than at this year’s spring statement (indeed, they are near a 27-year high, and above that of any other G7 economy). ⁶⁰ Smith I and Fleming S, ‘Why are UK borrowing costs so high?’, Financial Times, 30 August 2025, retrieved September 2025, www.ft.com/content/372c13ed-c5ad-4dda-a98e-6474cb37c55f  This has contributed to political difficulty: polls show that the government more broadly, and Reeves specifically, is unpopular with the public and she is facing restlessness from backbenchers unconvinced by her economic and fiscal strategy. 

Reeves must decide how to respond in her autumn budget. She may be tempted to follow the well-trodden path of essentially doing as little as she can get away with – that is, to raise just enough money to meet her rules in the least noticed and least politically contentious ways.

But that is a sticking-plaster approach. And one unlikely to deliver longer-term fiscal sustainability. It would miss an opportunity to chart a new course for tax policy over the rest of this parliament that could deliver much-needed tax reforms to provide longer-term fiscal stability and help deliver the government’s growth objective.

The government needs a new approach to tax

Labour’s original sin was its unrealistic approach to tax in the election

It has not been an easy first year for the chancellor. She has been dealt a particularly difficult hand, with an unstable global economy and a deteriorating outlook affecting many western economies. But her travails are also partly of her, and the Labour Party’s, own making. 

Ahead of the 2024 election campaign, Labour – like the incumbent Conservative government – flatly refused to recognise the true severity of the fiscal inheritance the winner would face. Numerous external commentators, including the IfG, had pointed out the inconsistency between the plans for government spending put forward by all the major political parties and the promises being made on public service quality. For its part, Labour promised better public services while also pledging not to raise the rate of any of the largest taxes – income tax, National Insurance contributions (NICs), VAT and corporation tax.

In many ways this was Labour’s original sin. And the issues it has created have only multiplied after Labour took office as Reeves failed to make the case that difficult choices were needed on tax and spending. In the October 2024 budget, she announced significant tax rises (the largest being the increase in employers’ NICs, her way of claiming not to have broken her election promise regarding ‘working people’) and increased spending substantially. But this meant she retained very little room for manoeuvre against her “iron clad” – albeit in practical terms fairly loose – fiscal rules. 

In the event she left herself just £10bn the right side of her intended limit on the current budget deficit five years ahead (Figure 1): a truly tiny margin given five-year-ahead borrowing forecasts move by an average of around £15bn every six months. Worse, she boxed herself in further by repeatedly saying after the budget this was a ‘one and done’ tax rise, which now appears particularly ill-judged. 

The recent disclosure that Reeves has commissioned a review of the Treasury’s communications is revealing. ⁶³ Parker G and Fleming S, ‘Reeves asks FCA head of communications to review Treasury media operation’, Financial Times, 10 July 2025, retrieved September 2025, www.ft.com/content/c8670a47-3f64-4d4a-a6c5-97205d42cb2a  But the core problem is arguably less ‘the comms’ but that her officials appear to be struggling to understand, let alone pitch to the public, what it is they are meant to be communicating. Reeves’ first budget left a fiscal position that was not resilient to future bad news – which, with wars raging and the entirely likely return of Donald Trump to the White House on the horizon, was hopeful at best.

And indeed the relatively small downgrade to the OBR’s economic forecast in March left Reeves feeing compelled to find £5bn of savings to restore her room for manoeuvre against her fiscal rules. Her decision to plug this gap by raiding the welfare budget, via cuts to incapacity and disability benefits, was rushed, poorly explained and ultimately unsuccessful: the resulting U-turn meant the reforms will not save any money during this parliament. 

Reforms to disability benefits are not the only example of poor policy development causing problems. One of Reeves’s first policy announcements as chancellor, as part of a ‘fiscal audit’ at the end of July 2024, was to cut winter fuel payments for most pensioners. Announcing this cut without any warning and in isolation from later tax rises and any other spending cuts – and so divorced from any apparent wider strategy – made it look like a panicked move. It immediately fuelled vocal opposition.

Ministers did not have good answers when pressed on the changes, not least the decision to link the means test to pension credit, a benefit only available to those on very low incomes with low take-up. Ultimately the government U-turned, despite broadly positive public polling on this policy ⁶⁴ Bush S, ‘Labour U-turn on a modest policy could hit credibility hard’, Financial Times, 22 May 2025, retrieved September 2025, www.ft.com/content/a0b2c70d-6dab-4a47-9f22-c9d59b8883bd  and it being widely supported by economists (since the benefit was poorly targeted and had drastically reduced in value since its introduction).

Reeves’s likely tax rises are not necessitated by her own rules

The OBR’s official forecast later in the autumn will reveal the scale of the fiscal problem Reeves now faces but higher interest rates and an expected deterioration in the growth forecast are both likely to mean the fiscal picture will look worse, potentially by around £20bn. At the very least it is likely she will need to fill the gaps created by the reversal of announced policies to cut winter fuel payments and disability benefits. Either at this budget or a future one, she also needs to restore a greater margin of headroom against her fiscal targets if she is to avoid being buffeted by every small movement in the economic outlook.

This need for ‘fiscal tightening’ is not just about Reeves’s self-imposed fiscal rules, however. There is a real constraint on how much any government can sustainably borrow and the signs are that this one faces a much tougher financing environment compared even to just a few years ago. Borrowing remains high – at 5% of GDP for the past few years, although falling by 1% of GDP this year – which means changes in the cost of borrowing have a big impact on the public finances. 

As the OBR concluded in its recent Fiscal Risks and Sustainability report, “the UK faces a relatively high marginal cost of issuing and refinancing its gilts, both compared to the past and compared to other countries”. ⁶⁶ Bush S, ‘Labour U-turn on a modest policy could hit credibility hard’, Financial Times, 22 May 2025, retrieved September 2025, www.ft.com/content/a0b2c70d-6dab-4a47-9f22-c9d59b8883bd  It is these realities that constrain how much the government can borrow in the short and longer term, not just the official fiscal rules.

Reeves should not fall into the trap of following the path of least resistance

Reeves will not be the first chancellor to approach a budget needing to find more revenue. Since 2010, forecast downgrades have been a frequent pattern and each of George Osborne, Philip Hammond, Rishi Sunak and Jeremy Hunt needed to find additional revenue during their time in the Treasury. 

The past 15 years has included some examples of chancellors announcing big revenue raisers, notably Osborne’s increase to the main rate of VAT in 2010, Sunak’s introduction of the Health and Social Care levy in 2021 and Reeves’s increase in employers’ NICs in 2024. But these have been the exception rather than the rule.

Instead, chancellors have tended to increase smaller and less salient taxes, or to increase larger taxes in less obvious ways, the accumulation of which amounts to a substantial tax increase over time. Osborne for example increased the lesser known Insurance Premium Tax on three separate occasions, with his successor Hammond announcing a further rise in his first fiscal event, which together have increased the annual tax take from this small tax by over £4bn, an 80% increase over baseline revenues. ⁷³ Office for Budget Responsibility, ‘Policy Measures Database – March 2025’, Office for Budget Responsibility, 3 April 2025, retrieved September 2025, https://obr.uk/data/

Of the other approach, many chancellors have opted for so-called ‘stealth taxes’, the most striking being the ongoing freeze to income tax thresholds, effective since April 2021 and which are now expected to increase the income tax take by £48.9bn in 2029/30 ⁷⁴ Office for Budget Responsibility, Fiscal risks and sustainability – July 2025, op. cit, p. 139.  – the equivalent of increasing the basic rate by six percentage points. ⁷⁵ HMRC, ‘Direct effects of illustrative tax changes’, HMRC, updated 24 June 2025, retrieved September 2025, www.gov.uk/government/statistics/direct-effects-of-illustrative-tax-changes/direct-effects-of-illustrative-tax-changes-bulletin-january-2025

A similar approach will be tempting for the beleaguered chancellor. The explicit tax rises in her first budget proved unpopular, to say the least, and pressure from her own backbenchers has led to the winter fuel and welfare U-turns described above. So she may well view a broad set of smaller measures to be the politically safest route, and the Treasury will have a long list of these. This might be the path of least resistance in the short term – but it would be a mistake to rely solely on this, as it has been for previous chancellors.

Piecemeal changes based on political convenience have led to the UK’s inefficient tax system: further such changes will complicate it and increase distortions still further. ⁷⁶ Delestre I, ‘Taxation’, in Bailey D, Brewer M, Charlesworth A and others eds, Policy Landscape 2025, UK in a Changing Europe and Resolution Foundation, 2025.  Differences in the tax treatment of otherwise similar activities (such as self-employed and employee income, different consumer purchases and different types of carbon emission), among other imperfections, all create a system that distorts decisions more than is necessary. ⁷⁷ Tetlow G and Marshall J, Taxing times: the need to reform the UK tax system, Institute for Government, 2019, retrieved 17 September 2025, www.instituteforgovernment.org.uk/publication/reform-uk-tax-system  Reeves has said that growth is her main priority as chancellor: an eclectic grab bag of tax raisers that complicate an already inefficient tax system would hamper, not promote, these efforts.

Such an approach would also make it impossible for the chancellor to articulate (and implement) a coherent strategy, particularly given the seemingly accepted problems with Treasury comms. Reeves’s corporate tax roadmap was intended to provide certainty for that part of the tax system, and did so mainly by ruling out changes to specific rates and reliefs. But large uncertainty remains for the rest of the tax system. And that uncertainty is greater because Reeves has not articulated a bigger vision for what she wants the tax system to achieve. It appears instead that any measure that might be politically palatable could be on the table, whether or not it serves the growth mission or any other government objective. This uncertainty is itself damaging for growth, and can deter businesses from investing. ⁷⁸ Wilkes G, Business investment: Not just one big problem, Institute for Government, 2022, www.instituteforgovernment.org.uk/publication/report/business-investment

Reeves should avoid the misconception, apparently common to chancellors, that such an approach minimises political risk. Small, isolated changes can create a concentrated group of losers and attract outsized bad press. The 2012 ‘omnishambles budget’ included several such examples (including tax increases on hot takeaway food, dubbed the ‘pasty tax’, and on static caravans) and Reeves’s winter fuel changes certainly fall into this category. 

Internal politics can hurt chancellors as much as negative headlines, and small changes open to door to a backbenchers feeling empowered to oppose the measure without undermining the government’s entire strategy.

Reeves will ultimately be judged as chancellor by the effects of her policies on the economy and households. One year into her term, and several years out from an election, she can still enact policies that will make a difference. Focusing on ones that will lead to better outcomes, rather than obsessing over how they poll in the short-term, would be the prudent approach. 

Attempting to raise substantial sums only from the very wealthy would increase the fragility of the tax base

Several commentators, ⁸⁴ Tax Justice UK, ‘In 2025 we can push the government to tax wealth more’, blog, Tax Justice UK, 19 December 2024, retrieved September 2025, https://taxjustice.uk/blog/in-2025-we-can-push-the-government-to-tax-wealth-more/  and Labour MPs, ⁸⁵ UK Parliament Early Day Motions, Proposal for a wealth tax, EDM 1725, The Stationery Office, tabled on 21 July 2025, https://edm.parliament.uk/early-day-motion/64124/proposal-for-a-wealth-tax  have argued that Reeves should prioritise raising revenue from the very wealthy, possibly including in the form of an explicit ‘wealth tax’. This would, they argue, be most consistent with Labour’s manifesto commitment not to raise taxes on ‘working people’. ⁸⁶ The Labour Party, Change: Labour Party Manifesto 2024, The Labour Party, 2024.

There are certainly ways in which those receiving more of their income from wealth are under-taxed under the current system. For example, rates of capital gains tax (CGT) remain below income tax rates: reforms to CGT that increased the rate while also index-linking the base cost of assets over time would be both more efficient and could raise some additional revenue. And council tax, the UK’s main property tax, is regressive, meaning the effective tax rate is much higher on less valuable properties. Its out-of-date valuations mean it has not kept pace with the increase in prices at the top end of the market (as well as meaning they fail to reflect relative changes between different properties and different areas).

However, if Reeves is looking to raise substantial sums – in the order of tens of billions of pounds – it would be difficult, and risky, to raise all or most of that only from the very richest. The revenue yield from such a set of measures would be more uncertain than broad-based tax increases, because it would be sensitive to the behaviour of a small group of people. This would be even more true if the same group of people were the focus of several different tax increases. While there is so far little concrete evidence to back up anecdotal claims of a ‘millionaire exodus’ following tax changes already made over the past two years, this group is more mobile than the average worker and even a relatively small share of them moving away could lead to shortfalls across several tax bases.

Wealthier and higher-income people already pay a larger share of taxes than they did even 15 years ago. Between 2010 and 2024, the burden of income tax shifted even more towards those on the highest incomes, while the burden on middle earners actually fell. In 2024, the Institute for Fiscal Studies calculated that income tax and NICs accounted for a smaller share of the earnings of a full-time median earner with no children than at any time in the past 50 years, ⁸⁷ Adam S, Miller H, Upton B, The government’s record on tax 2010-24, Institute for Fiscal Studies, 2024, p. 16.  despite the overall tax burden reaching a 75 year high. And while there are other countries that raise substantially more of GDP in tax than the UK, almost all do so while also taxing those on average incomes more than the UK. ⁸⁸ Tax Policy Associates, ‘Are UK workers over-taxed? The answer in three infographics’, blog, Tax Policy Associates, 27 June 2025, retrieved September 2025, https://taxpolicy.org.uk/2025/06/27/uk-workers-tax-wedge-infographics/

There are options Reeves could prudently take that would raise more revenue from high income and high wealth individuals. But it would be unrealistic to attempt to raise substantial sums only from this group. That means tax increases will also need to fall on those with average levels of income and wealth to avoid undermining the stability of the UK’s tax base. And therefore, the case for any such tax rises will need to be made to this wider population.

A tax reforming agenda could help Reeves achieve her growth mission

As Reeves considers which taxes to increase, she can and should be guided by the objectives she and the prime minister have set. The many problems with the UK’s current tax system – exacerbated by previous chancellors’ unstrategic approach – distort economic activity and undermine the government’s growth mission.

Several tax reforms would improve the system in a way that could support growth, while also raising revenue, including: ⁹² Tetlow G and Marshall J, Taxing times: the need to reform the UK tax system, Institute for Government, 2019, retrieved 17 September 2025, www.instituteforgovernment.org.uk/publication/reform-uk-tax-system

• Improving the way property is taxed. Stamp duty acts as a break on growth by making it harder for people to move, reducing labour mobility as well as making people less likely to downsize. As mentioned above, the UK’s main property tax, council tax, is also regressive and outdated.
• Moving to tax all income on a similar basis irrespective of its source to reduce incentives to distort behaviour to minimise tax. The current approach – of taxing self-employment, partnership income and capital income far less than employment income – makes businesses operate less efficiently, and causes waste through the effort and time taken on administration. There is also unequal tax treatment of the earnings of those below and above the state pension age.
• Moving to a uniform rate of VAT to avoid vastly different rates distorting decisions towards buying some goods and services over others (in a way that does not serve a clear purpose) and leading to a waste of resources as producers try to prove they are in a lower-taxed category – for example, the ongoing legal wrangle over whether giant marshmallows should or should not be liable for the standard rate of VAT. ⁹³ Hattersley R, ‘Things get sticky in marshmallow VAT dispute’, blog, Accounting Web, 21 March 2025, retrieved September 2025, www.accountingweb.co.uk/tax/business-tax/things-get-sticky-in-marshmallow-vat-dispute
• Reducing tax disincentives for businesses to grow and workers to earn more. The UK’s high VAT threshold (by international standards) encourages businesses to stop expanding when turnover reaches that level; a much lower level would bring most businesses into the VAT regime and remove the cliff-edge. Similarly, there are currently several disincentives to people earning more than £100,000, including a sudden loss of free childcare entitlement and a marginal tax rate of over 60%.

The government might also want to prioritise reforms that help the government better achieve its other objectives. On net zero, for example, the current mix of taxes and charges is heavier on some carbon emissions than others, meaning that tax incentives do not all push in the same direction to the same degree. ⁹⁴ Hodgkin R and Rutter J, Net zero and the tax system, Institute for Government, 2021, www.instituteforgovernment.org.uk/publication/report/net-zero-and-tax-system  

When Rishi Sunak was chancellor, the Treasury launched a call for evidence on the options for transferring the burden of levies from electricity to gas as part of that government’s net zero strategy. That has never been taken forward, even though the Climate Change Committee advice on the seventh carbon budget pointed out the importance of removing levies from electricity. The Industrial Strategy promised relief from high electricity prices for the most intensive users, but was silent on how the government intended to meet that commitment. Clarity on the direction of travel on all these fronts is essential.

The conventional wisdom is that tax reform is too difficult because the measures would be complex and create too many losers, thus making the changes politically unpalatable. But Reeves has already found that increasing taxes without reform is unpopular. And the government has lacked a clear story to tell about why or how the tax rises she has introduced will help achieve the government’s wider objectives. Tax reform is therefore the approach the chancellor should take.

How can Reeves be an effective tax reforming chancellor?

Reeves potentially has another three or four budgets before an election, even if she sticks to her laudable commitment to confine herself to a single major fiscal event a year. Her priority in her upcoming budget will be to show that she has taken sufficient action to prevent those future budgets being totally dominated by the need to ensure compliance with the letter of her fiscal rules. But she also has the opportunity to set out what has been absent so far – a long-term approach to tax policy making. 

All governments in recent years have struggled to make the case for significant personal tax reforms. Alistair Darling ended up having to develop a big compensation package for Gordon Brown’s abolition of the 10p tax rate before he became prime minister in 2007; Osborne had to abandon his minor VAT changes in the 2012 omnishambles budget; Hammond was forced to drop his proposals to reform the NICs treatment of the self-employed in 2017; no chancellor since the late 2000s has felt able to maintain the real value of fuel duty. Instead, as set out above, chancellors have largely resorted to a mix of increases in smaller less salient taxes, or taxes on business. 

There are four key steps that will help Reeves make progress where her predecessors have not.

1. Choose sensible tax rises this autumn

Tax reform is not something that can be rushed, or completed in one event. With the budget coming soon after the party conference season, the chancellor’s options are therefore limited in the short term. Reforms that improve the structure of the tax system will take time to work up internally, and to roll the pitch and communicate externally before announcement. 

That the government lacks a coherent approach to tax is unfortunately plain to see, so it is unrealistic to expect a budget this year with wide-ranging reforms to improve the structure of the tax system. And Reeves would be unwise to try in most cases, given the need to explain and communicate what the government would be trying to achieve.

In that context, Reeves’s priority in choosing any tax measures for this autumn should be to avoid layering even more complexity and distortion onto the tax system. 

Raising substantial revenue will likely require broad-based tax rises that are paid by a large population. The best candidates would be increases to the main rates of VAT, income tax and national insurance – even if that has to come at the political price of undoing one of Labour’s (rash) manifesto commitments. Announcing a further freeze to income tax and NICs thresholds in 2029 would not be as transparent as an increase in rates but would still be paid by a broad group of people (and would not breach the manifesto commitments), so would be a better option in the short-term than other more distortive changes.

2. Articulate a clear tax strategy

Reeves has more flexibility in the longer-term, however, and she can use the budget to lay out a new approach that she will adopt throughout the remainder of the parliament. The best way to do this is by publishing a tax strategy alongside the budget. 

No British Chancellor has ever produced a proper tax strategy, setting out their goals for the tax system over a parliament. Like her Conservative predecessors, Reeves did publish a corporate tax ‘road map’ ¹⁰⁴ HM Treasury, Corporate Tax Roadmap, The Stationery Office, 2024.  alongside her October 2024 budget, but this was mainly a commitment not to make changes either to the rates of corporation tax or the system of capital allowances, alongside a few areas announced for review. The road map stressed the importance of predictability, stability and certainty which are indeed important, but it is not only business that needs them. Repeated speculation about changes to, for example, pensions and savings tax incentives can force choices on individual taxpayers anticipating changes which they may then regret when the chancellor does not move. 

Chancellors abjure tax strategies because they are worried about constraining their room for manoeuvre. But a strategy does not need to lay out exactly what changes the government will make. Rather it should articulate what the tax system is trying to achieve, and commit to making changes that move in that direction. This provides taxpayers with a greater degree of predictability about the types of changes that might be made and can promote certainty, even if the exact tax changes are not certain. This is particularly important where taxpayers are making longer-term decisions, for example on investment, pensions and savings. It can also provide an anchor for choices the chancellor makes by setting strategic goals that will guide future policy changes.

A strategy would also give the government the opportunity to articulate how it wants the tax system to contribute to its priorities, like growth and clean energy – a role that is currently unclear. One reason why the tax measures at the October 2024 budget went down badly was because they did not seem to be consistent with the government’s pursuit of growth and tackling economic inactivity, as increasing employers’ NICs looked like a measure targeting jobs and was particularly burdensome for entry level jobs or those trying to return to the labour market after a period out of it. There was also no discussion about the role of the tax system in the recent Industrial Strategy, even though some of the sectors targeted by that strategy are also significantly affected by aspects of the tax system (such as creative industries’ tax reliefs, R&D tax relief and taxes and levies on energy). 

A tax strategy should also highlight areas where tax policy is sending confusing or even contradictory messages to taxpayers and leading to unnecessary complexity. The demands of short-term budget making often lead to decisions which can undermine the efficient performance of the tax system as a whole and can act as a drag on the economy. A more strategic approach to tax policy should reduce those risks. 

The final area where the government would benefit from having a clear strategy is in acknowledging and setting out how it plans to address long term fiscal gaps. The most glaring of these is the failure of successive governments to set out any plans for the potential replacement of fuel duty, which currently raises £24bn a year but is forecast to fall away rapidly during the 2030s as the transition to electric vehicles gathers pace. ¹⁰⁵ Hodgkin R and Rutter J, Net zero and the tax system, Institute for Government, 2021, www.instituteforgovernment.org.uk/publication/report/net-zero-and-tax-system  

3. Package tax changes, including with non-tax policies

Past experience suggests that governments have most latitude to reform taxes if they are part of a bigger picture. Brown raised NICs in 2002 to fund a big increase in health service spending; Sunak persuaded Boris Johnson to do something similar by creating a new “health and social care levy” in 2021, which was essentially an increase in employee NICs but with a levy also on dividend income, again to fund the NHS and social care. ¹⁰⁶ Parliament passed that new levy only for it to be abolished in Kwasi Kwarteng’s mini-Budget; that abolition was one of the few measures that survived his departure.  On the other hand, Hammond failed to package his NICs changes: changes to align benefits for self-employed people with employees had been introduced the year before, having been announced several years earlier. Brigading those together with the tax increases would have made a much more effective package. 

The government has already done some packaging: its imposition of VAT on private school fees has been de facto hypothecated to pay for more teachers in state schools. The task for the government this time is harder, as it will probably want reforms that are net revenue raisers. Even so, it should look to combine multiple tax changes and/or combine tax changes with other reforms which can be presented as overall improvements on tax, spending or regulation. For example, if the chancellor wanted to be very bold, she could do a radical VAT reform, applying a uniform lower standard rate but across the board, using some of the proceeds to compensate lower earners and people on benefits. In doing so, she would impose VAT on children’s clothes and shoes, from which the better off gain the greatest cash benefit, while lower income families could be compensated (at least on average), helping to address government priorities such as reducing child poverty. 

It may be easier to construct packages with bolder reforms that enable winners to be created alongside those who lose out. Small, unpopular, changes are easier to unpick than bigger moves – as George Osborne found when he was unable to sustain his 2012 VAT changes. 

4. Make the case for change and roll the pitch

This government has got itself into trouble when announcements have come without a clear justification and without the case for action being made in advance of measures to tackle a problem – winter fuel being the most contentious example. ¹⁰⁷ The one positive out of the fiasco was that the government campaigned to get more eligible pensioners to claim pension credit, offering a substantial uplift to their income, but this means that the government may end out paying more in pensioner benefits as a result of a cackhanded attempt at saving.

There is evidence that the public can be persuaded of the case for tax rises if it is made well and found compelling. Brown’s NIC changes to pay for increased health spending were mentioned above – and he prepared the ground for those changes by commissioning an independent review of the health service to make the case for providing extra money.

That was what Sunak and Johnson tried to repeat with their Health and Social Care Levy and they were able to make the case that the NHS needed to recover and that social care needed better funding. The public has also accepted significant tax rises in the past to rebuild the public finances – both in the wake of the financial crisis and the bail out of the banks, and after the UK’s exit from the European Exchange Rate Mechanism in the early 1990s. 

One way to make the case for change is to make better use of external reviews. One of the virtues of these sorts of reviews is that they are much more open about the evidence base they use to come to their conclusions and invite more discussion in advance of recommendations. This government has hardly shied away from using reviews as a tool to develop policy: the MoJ’s sentencing review is looking into how to reform the criminal justice system; DWP has in effect resurrected the highly regarded Pensions Commission of the New Labour era; ¹⁰⁸ Rutter J, Davies N, Tetlow G, Lessons for the government’s 'revived' Pensions Commission, Institute for Government, 2025, www.instituteforgovernment.org.uk/comment/new-pensions-commission  DHSC has appointed Louise Casey to chair a review into the adult social care sector. 

But the Treasury has, under this government and previously, proved reluctant to curtail its discretion over tax policy. The closest it has come was with its Office for Tax Simplification, established by the coalition and which did some quite useful reports on aspects of the tax system, ¹⁰⁹ Troup E, The Office of Tax Simplification: What do 12 years of the OTS tell us about the role for an independent body in tax policy making?, Institute for Government, 2023, www.instituteforgovernment.org.uk/publication/office-tax-simplification  but this was abolished by Hunt after its demise was announced in Kwasi Kwarteng’s mini-budget. ¹¹⁰ Tetlow G and Rutter J, ‘What should succeed the Office for Tax Simplification?’, blog, Institute for Government, 29 March 2023, retrieved September 2025, www.instituteforgovernment.org.uk/comment/office-tax-simplification  

The Treasury could benefit from opening up. There are some areas of the tax system where an external review could both usefully recognise the existence of a problem (something the original Pensions Commission did very effectively in the 2000s) and seek to lay out options for reform. 

But even if the government is unwilling to commission an external review, it can still improve things by being more open about its analysis. At the moment most analysis in the public domain comes not from government but from think tanks and research centres like the Institute for Fiscal Studies, the Resolution Foundation or the Centre for the Analysis of Taxation (CenTax). Being much more open with analysis on trends in sources of revenue and distributional questions would lay the ground for the government to lead a better public discussion on tax options – and to debunk apparently easy options which suggest substantial money can be readily raised from a few taxpayers without touching the majority. This is an approach civil servants take in other countries such as Ireland and New Zealand, which allows ideas to be discussed more openly. ¹¹¹ Tetlow G, Marshall J, Pope T, Rutter J, Sodhi S, Overcoming the barriers to tax reform, Institute for Government, 2020, www.instituteforgovernment.org.uk/publication/overcoming-barriers-tax-reform

The review of Treasury communications indicates that the chancellor accepts previous comms has been found wanting. ¹¹² Parker G and Fleming S, ‘Reeves asks FCA head of communications to review Treasury media operation’, op. cit.  One of its focusses appears to be to raise understanding of the fiscal options among Labour backbenchers to persuade them to accept difficult choices without rebelling, as they did so damagingly on disability benefit changes. 

It is easy to blame the communication, and indeed the government’s management of its backbenchers has been a running sore of this government. But the issue cycles back to Labour’s original sin: that the chancellor, not unlike the prime minister, has since the election campaign lacked a convincing a story to tell. Defining a tax strategy, and packaging reforms to match it, which will make for a far stronger narrative. 

Conclusion

It appears almost certain that Reeves will raise taxes this autumn after promising that her 2024 budget rises were a one-off. That is dictated not just by her fiscal rules but also by the already high level of government debt and debt issuance and volatile market sentiment, which reduce her leeway. 

The Treasury does seem to be engaging in some fairly extensive kite flying, for example around property tax reform, and think tanks are piling in with their own proposals. This may be a sign that Reeves is steeling herself to be a tax reforming as well as a tax raising chancellor. But this sort of unofficial kite flying (which happened in the run-up to the 2024 budget and the 2025 spring statement as well, with rumours about pensions tax reform and changes to ISAs) is no substitute for official, open work preparing the ground for serious reform.

Reeves has left things too late to do that this autumn. As such, her options for tax rises in the next budget are likely limited to well-understood and easy to implement changes.

If she wants to be able to point to significant improvements to the tax system by the end of the parliament, she would be best advised to deal with her revenue problem now in the least economically damaging way possible (even if that has to come at the political price of undoing one of Labour’s rash manifesto commitments). But she also needs to announce a credible tax strategy that sets out a clear agenda and approach to considered and lasting reform for the rest of the parliament. 

Ken Clarke, the former Conservative chancellor, reflecting on the government he served in in the late 1990s, said that “we didn’t take any notice of opinion polls, we knew we were extremely unpopular, and we didn’t have a popular policy in our portfolio” and that “politics was the art of explaining what you were doing, why you were doing it and arguing against your critics and getting it through parliament and implementing it”. He understood that a chancellor’s role was not always to be popular. 

While Rachel Reeves has not been shy of claiming to take ‘difficult decisions’ as chancellor, in practice she has seemed unwilling to stick `to measures once they have been shown to be unpopular. Now is the right time for her to grasp the nettle on tax reform which will ultimately yield economic benefits and, by allowing the government to make a coherent argument for the changes it is introducing, could yield political benefits too.