Labour’s favourite think-tank calls for income tax hike in £30bn raid

Fears are mounting over Rachel Reeves’ Budget today after Labour’s favourite think-tank called for a £30 billion raid on families and businesses.

The Resolution Foundation set out a painful series of increases in a new report likely to be studied closely by the Chancellor – despite recent warnings that firms can’t take any more.

It urged Ms Reeves to put up income tax by 2p – breaking Labour’s manifesto pledge – and called for levies on everything from crisps and chocolates to long-haul flights and pensions.

The eye-watering onslaught could include extending the hated freeze on tax thresholds by another two years, milking £7.5billion extra from hard-working Brits.

And the bar for small firms registering for VAT could be slashed from £90,000 to just £30,000, causing extra red tape and higher charges for sole traders. 

The report is significant because of the Resolution Foundation’s increasingly influential role in formulating government policy, with its former boss, pensions minister Torsten Bell, playing a key role in writing November’s Budget.

The government tried to pour cold water on the alarming proposals this morning, with housing minister Matthew Pennycook insisting the commitments against raising income tax, employee national insurance and VAT still stand.   

But Tory business spokesman Andrew Griffith warned the proposals threatened ‘to tax the economy into recession’. 

He added: ‘Rather than roll the pitch for the Chancellor to break her promise not to hike income tax, Labour’s house elves at the Resolution Foundation should apply themselves to advocating cuts to government spending – starting with the bloated welfare bill.’

Shadow chancellor Sir Mel Stride, said the proposals were ‘a worrying sign of what Labour ministers may be planning for the Budget. 

He said: ‘Having already raised taxes by £40billion a year, Rachel Reeves will only hurt hard-working families and stifle growth if she comes back for more – something she said she wouldn’t do.’

British Retail Consortium chief executive Helen Dickinson said firms were ‘still reeling’ from the higher costs dumped on businesses then, adding: ‘It is vital the next Budget does not add further costs on retailers which would only push inflation up faster.’

Anna Leach, chief economist at the Institute of Directors, said that while tax increases were probably needed, the Budget needed to be ‘as tax-light as possible to avoid undermining growth’.

Former pensions minister Ros Altmann said the report’s recommendations were ‘very worrying… and particularly so because many of those making or advising on the decisions on Budget tax measures hail from the Resolution Foundation.’

It comes after a series of bosses recently sounded the alarm over the possibility of tax hikes.

Next boss Lord Wolfson last week said Britain faced years of ‘anaemic growth’. This month, former Marks & Spencer boss Stuart Rose said Labour had pushed the economy to the ‘edge of a crisis’. And Asda chair Allan Leighton last month urged the Chancellor to stop ‘taxing everything’.

Ms Reeves is under pressure to meet rules requiring her to target lower debt and borrowing amid jitters on bond markets over Britain’s finances. 

The Resolution Foundation’s report played down the likelihood that spending cuts could play a role in filling a Budget black hole. 

‘So tax must play a role (and anyone who claims otherwise should tell us how else they might save such a sum),’ the report said.

The proposals include a 2p increase in the rate of income tax and a salt and sugar tax that could raise £3.5 billion. But, it conceded, this was likely to mean further pressure on food inflation already running at more than 5 per cent.

Salt and vinegar crisps would go up by 2 per cent and Dairy Milk by 13 per cent, it said.