Rachel Reeves is under pressure to overhaul the UK’s tax system after the Resolution Foundation urged her to cut employee national insurance contributions by 2p and offset it with an equivalent rise in income tax.
The thinktank, which has close ties to senior Labour ministers, said the measure could raise an additional £6bn a year by spreading the tax burden across a wider pool of taxpayers, including pensioners, landlords and the self-employed. Employee national insurance is not paid by these groups, unlike income tax.
Publishing proposals for up to £30bn in extra revenue, the foundation argued that the “2p switch” would help “level the playing field” while keeping working-age employees’ take-home pay unchanged. The plan mirrors the argument made by former Conservative chancellor Jeremy Hunt, who described national insurance as an “unfair double tax on work” when he cut contributions by 4p last year.
However, the recommendation puts Reeves in a politically difficult position. While the shift would leave net employee taxes unchanged, it would technically amount to raising income tax – something Labour promised not to do during the election campaign.
The intervention comes as the chancellor prepares her 26 November autumn budget against a backdrop of faltering growth, soaring borrowing costs and an expected productivity downgrade from the Office for Budget Responsibility. Economists believe Reeves faces a fiscal gap of as much as £40bn, leaving her under pressure to raise taxes on companies, landlords and wealthier households.
The Resolution Foundation said Reeves should use the budget to rebalance the £1tn tax system, reducing the bias against employees and raising more from those with greater wealth. Alongside the NI switch, it suggested reforms such as extending employer national insurance to partnerships, tightening corporation tax compliance, and introducing levies on sugar, salt and carbon-intensive travel.
Adam Corlett, principal economist at the thinktank, said: “These sensible reforms would raise revenue while doing the least possible harm to workers and the wider economy. And by acting decisively, the chancellor can turn her full attention back on to securing stronger economic growth.”
A Treasury spokesperson said: “The chancellor makes tax policy decisions at fiscal events. We do not comment on speculation around future changes to tax policy.”
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Rachel Reeves urged to shift 2p from NI to income tax in autumn budget