On 14 October 2025, the House of Commons Treasury Committee (the Committee) took evidence from well-known tax experts in advance of the Chancellor’s second Budget on 26 November 2025.
Perhaps because of the prolonged period of speculation in the run up to this year’s Budget, the debate is evolving from straightforward questions about which tax to raise to generate revenue quickly, or how to encourage growth through tax incentives, to a more sophisticated discussion: can you raise taxes at the same time as encouraging growth and improving the overall UK tax system – and if so, how?
This article is not a comprehensive report of the entire Committee session; rather it focuses on the witnesses’ overarching views on tax reform, and gives some examples of policy proposals put forward.
To govern is to choose
Helen Miller, Director of the Institute of Fiscal Studies (IFS), opened the session by explaining the series of choices the Chancellor has to make.
The first choice is how to respond to the gap in the public finances, estimated to be between £20 billion to £40 billion. Most people think that Rachel Reeves will stick to her fiscal rules and Ms Miller thought this was the right choice to make. The second judgement is how much headroom the Chancellor wants to leave against her fiscal rules. The third political decision is the balance of spending cuts and tax rises needed to plug the deficit and achieve the desired headroom.
Reeves must then decide which taxes to raise and, in particular, whether to stick to the manifesto pledges not to raise National Insurance (NI), VAT and rates of Income Tax and Corporation Tax. Ms Miller explained that not all tax rises are equal, with some doing more damage to welfare and growth than others. Ms Miller emphasised that all of these decisions will involve trade-offs and political choices.
Ms Miller thought that whatever taxes the Chancellor decides to increase in the Budget, she should take advantage of the opportunity to make more fundamental reforms to the tax system so it does less damage to economic growth. She went on to explain that such reform does not mean ripping up the rule book at the next Budget. It begins with a political vision of what a ‘good’ tax system looks like: this Budget could then have a series of small measures that take steps in the right direction towards that destination.
Ruth Curtice, CEO of the Resolution Foundation, agreed with Ms Miller’s comments regarding tax reform, but pointed out that the first challenge of the Budget is to find more revenue to close the fiscal gap. As well as minimising the impact of tax rises on growth, minimising the impact on inflation was also important. With the UK just emerging from a cost-of-living crisis, consideration should be given to the distribution of tax rises and who would be winners and losers.
Scrabbling for answers
Dan Neidle, founder of the think tank Tax Policy Associates, thought that the ‘wise way’ to raise taxes would be to breach the manifesto pledges in respect of one of the big taxes. The ‘less wise way’ would be to pick from a ‘Scrabble bag’ of lots of little individual tax rises, adding yet more layers of complexity into the UK tax system. He agreed with the other witnesses that, as well as addressing the immediate fiscal issues, the Chancellor should step back and think about ways to reform the tax system to be pro-growth.
Professor Arun Advani, Director of the think tank CenTax and Professor of Economics at the University of Warwick, thought there were plenty of ways to raise taxes in a manner that could actually improve the tax system. There are many places where the Government has changed one part of the tax system, but not another, meaning otherwise equal behaviours are treated differently. This has created complexity and scope for avoidance, which are bad for economic efficiency and growth. Tax reform should focus on addressing these gaps.
Growing through the options
The witnesses gave practical examples of changes to tax policy that could improve growth. Mr Neidle noted the UK’s corporation tax system is rated as one of the least competitive in the world. The complexity of our system means it ranks behind countries with higher corporation tax rates. He thought the Chancellor should make a political commitment to simplification.
Mr Neidle pointed to compelling research suggesting the VAT registration threshold is holding back growth, with traders deliberately keeping their turnover below the registration threshold to avoid a 20 percent hit to profitability (as the alternative of passing on the cost to customers would make them uncompetitive). Mr Neidle suggested reducing the threshold to a similar level to the rest of Europe. To ease any political fall-out this could be done in a cost-neutral way, for example by using the revenue raised to slightly reduce the headline rate of VAT. As this policy would be inflationary, the Government would need to explain it was being done to benefit overall economic growth.
Finally, Mr Neidle said the Government should address cliff edges in the income tax system – for example where someone earning between £100,000 and £125,000 has a top rate of 62 percent, but someone earning above that has a top rate of 47 percent. This impacts productivity as people turn down work and is a big issue for the NHS in particular.
Professor Advani agreed with the need to address such discrete distortions but argued the way to get economic growth is to look more broadly at changing the structure of the tax system. He pointed to areas where holding different types of investment (e.g. property vs shares) resulted in being taxed in different ways, or where providing labour in different legal forms could change the tax treatment.
The witnesses were unanimously agreed that stamp duty land tax (SDLT) should be abolished and replaced with a wider reform to property taxation, including reform of council tax.
The Committee asked about the impact on growth and inequality of the Resolution Foundation’s suggestion to reduce NI by 2p and increase Income Tax by 2p. Ms Curtis explained that raising revenue via income tax was less economically damaging than increasing the other big taxes. Increasing VAT could adversely impact inflation and increasing NI could adversely impact employment rates. Cutting NI and raising income tax means there is no increase in the net rate of tax paid by employees, but it would increase the burden of tax on pensioners, landlords and the self-employed. Ms Miller pointed out that increasing taxes on the latter two categories could disincentivise investment – an example of the difficult political trade-offs the Chancellor has to grapple with.
No signs of relief?
The Committee discussed the extent to which the UK’s complex system of tax reliefs are evaluated, citing a recent National Audit Office (NAO) report that HMRC spend £600,000 a year evaluating £200 billion worth of reliefs. Professor Advani pointed out that, unlike other departments, HMRC and HM Treasury are not subject to the spending review and so don’t have to provide an evidence base to justify the money spent on providing tax reliefs. Although evidencing the impact of reliefs can be complicated, he thought there should be a formal process where the Government tries to do this, a view Ms Miller agreed with.
Key takeaways
The Chair of the Committee closed the session summarising the key takeaways from the meeting. The fiscal position is very difficult for the Chancellor, and no one envies her having to make trade-offs on where to increase taxes. However, the UK needs to fix its existing taxes before it starts layering on more. The witnesses were all very clear on the need for predictability in the tax system – that is not the same as stability, where nothing changes. Rather it involves a holistic approach: setting out a vision for the type of tax system we want in the UK and then taking practical steps towards achieving that.
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