IFS cautions Rachel Reeves on risky revenue strategies Institute for Fiscal Studies advises against hasty financial measures

Basio badr

ago 5 hours

IFS cautions Rachel Reeves on risky revenue strategies Institute for Fiscal Studies advises against hasty financial measures

The Institute for Fiscal Studies (IFS) has cautioned Chancellor Rachel Reeves against implementing hasty revenue strategies that could jeopardize economic growth. As Reeves prepares for a pivotal budget next month, the IFS warns of potential risks associated with haphazard tax increases, which could lead to “unnecessary economic damage.”

Budgetary Challenges Ahead

Facing a significant budget deficit estimated at £20 billion to £30 billion, Reeves is under increasing pressure to develop a robust financial strategy. The IFS suggests that while there is an opportunity to enhance revenue without breaching Labour’s manifesto pledges, poorly designed tax increases could deter work incentives and hinder productivity.

Key Revenue Strategies Suggested by the IFS

The IFS emphasizes the need for comprehensive tax reforms on savings and investment income.
Potential revenue could be generated from taxes on pensions and closing the existing tax gap, which has been highlighted as significant.
Redistribution of national insurance contributions on employer pension payments could yield around £6 billion annually.
The IFS estimates that rectifying the tax gap affecting small businesses could recover more than £10 billion by aligning it with 2017–18 levels.

Reeves has ruled out increasing income tax, national insurance, and VAT before the upcoming budget, focusing instead on strategies that enhance fiscal flexibility. She aims to double the existing budget buffer from approximately £10 billion to £20 billion. However, high government borrowing rates continue to complicate her plans.

Concerns Over Political Pressure

Amid discussions of potential spending cuts and higher borrowing, Labour MPs have pushed back against cuts to essential services like universal credit. The IFS highlighted the need for caution, indicating that decisions driven solely by political motivations could negatively impact the overall economic landscape.

According to Isaac Delestre, a senior research economist at IFS, it is imperative that Reeves balances her revenue-raising goals with the broader economic implications. “Directionless tinkering and half-baked fixes must be avoided,” he cautioned, emphasizing that truly effective strategies would target inefficiencies in the current tax framework.

As the UK navigates this fiscal bind, Reeves’s upcoming budget represents a crucial opportunity to implement sustainable revenue strategies that promote both economic growth and fiscal responsibility.