What do progressives want to see in the Autumn Budget?

Ditch the fiscal rules, scrap the two-child limit, wealth tax now! Progressives want to see bold reforms in the Budget. Will Labour deliver?

The government is in a tight spot. What was originally estimated as a £30 billion hole in the public finances, combined with Labour’s strict fiscal rules, has left the government with little room to maneuver. In some positive news, the Office for Budget Responsibility recently revised its estimate, revealing that the hole in the public finances was closer to £20 billion rather than £30 billion. This is said to have played a part in the chancellor Rachel Reeves’ U-turn on her plan to hike income tax by 2% and cut National Insurance.

But beyond the financial troubles, the bigger question is what political priorities Labour should push forward in this Budget. Some on the left would like to see the government pursue policies that have an upfront cost but could save money in the long-term, while others argue that Reeves’ adherence to her fiscal rules is the source of Labour’s ills.

Ditch the fiscal rules! Tax the rich! End the two-child limit! These are just some of the bold reforms that progressives have been calling for since the early days of the Labour government. But will Labour deliver?

Labour’s fiscal rules

Multiple Labour MPs, trade unions and the representative body for unions, the TUC, have campaigned for the government to amend its fiscal rules. On a recent BBC Newsnight episode, Labour MP Clive Lewis made an impassioned plea for the government to change its fiscal rules. He said: “Don’t come back asking for more tax, come back and change the fiscal rules.”

James Meadway, economist and former advisor to ex-shadow chancellor John McDonnell, told Left Foot Forward that Reeves “basically can’t change the fiscal rules, unless she resigns”.

He said that when Reeves says the markets would panic if she changes them, she is right. 

“She’s been more than a year in office, and however long she was Shadow Chancellor before insisting she wasn’t going to change them.”

“If she changes the rules now, it will be taken as a very clear signal that the government has basically lost control of its spending plans, and you’d be looking at a sort of Liz Truss scenario,” Meadway added.

This means Labour could present an entirely new programme on the economy, but only if Reeves were no longer chancellor and if her replacement wanted to bring in radical changes.

In July, Keir Starmer said Reeves will be chancellor “for a very long time to come”.

However, Meadway, who was involved in advising a similar set of fiscal rules that McDonnell adopted in 2016, said Reeves’ fiscal rules are “quite badly designed” and “far too tight for government”.

McDonnell’s rules were to only borrow to invest and to balance day-to-day spending within a rolling, five-year window. Reeves’ rules are tighter as she froze the target year, meaning debt must be falling as a share of GDP by 2029–30, and the window for meeting that goal shrinks each year.

Richard Murphy, founder of the Tax Justice Network, has said that both McDonnell and Reeves’ debt-focused rules “guarantee austerity”. To take the country away from this, different fiscal rules would need to be adopted.

Tax reforms

Meadway notes that Labour has ruled out a tax on wealth, stating “We should be doing something about the inequality of wealth, by raising some money out of that, but we’re not.”

Another fiscal policy he criticised is that the Treasury hands over £26 billion a year to the Bank of England to cover losses from quantitative easing. It was an indemnity agreement that George Osborne made back in 2012 when quantitative easing was profitable. By 2027, the Treasury is expected to make a net loss from this agreement with lifetime costs of over £150bn by the early 2030s. 

The economist said: “There is no reason, really, to do this. You’re just handing money over to the Bank of England which, you know, as soon as you say it sounds a bit weird.”

Meadway says “these losses are somewhat notional, they’re not normal losses in the way that a company would make a loss.” 

He said the government could find ways around the losses and alter the indemnity so that the Treasury doesn’t have to automatically pay for the BoE’s losses.

Bank surcharge

In 2023, the Tories cut the tax on banks’ profits from 8% to 3%. Labour has indicated that it won’t touch the bank surcharge in the upcoming Budget.

However, Meadway pointed out that in a recent Financial Times article in which Treasury sources ruled out increasing taxes on banks, one banker openly admitted: “We’re awash with money”.

“This is a government that is far too close to default setting in the Treasury. And that’s always balance the books, so ignore multiplier effects. Don’t invest outside of London and maybe Oxford and Cambridge, and always suck up to the financial system,” Meadway said.

The multiplier effect is when government spending stimulates more economic activity than the initial cost of the investment. 

“It’s just nonsense. This is the doom loop in action, everyone else is going to get squeezed, but banks are going to be protected,” he argued.

Capital Gains

Joe Wright, Policy and Advocacy Manager at Tax Justice UK, said he wants to see the chancellor “move on from an incrementalist, steady as she goes approach that successive governments have taken on and enact some really bold structural reforms”. 

In particular, Tax Justice UK wants to see higher taxation on wealth rather than work. At the last budget, Reeves increased the main rate of capital gains tax from 20% to 24%. Now, Tax Justice UK would like CGT to be equalised with income tax. This would involve still having a tax-free allowance, and introducing lower and higher rates of CGT that match with income tax’s 20% and 40% bands. 

Tax Justice UK estimates that this would raise around £11 billion a year.

National insurance

Wright said that national insurance contributions should also be applied to income from wealth.

He said that with rental income, “you have a situation where landlords are often paying less tax than their tenants, which is clearly unfair”. At the moment, landlords do not pay 

Labour had indicated that it was considering increasing national insurance by 2% and cutting income tax by 2%. Reeves has since ruled out adopting this policy. 

Wright said it would have been a “modest step in the right direction” and would mean wealthy pensioners and landlords would pay more tax, raising around £6 billion a year.

There are rumours that the government may apply National Insurance to rental income.

Wealth tax

Around 30 Labour MPs have backed a motion tabled by Richard Burgon calling for an annual wealth tax of 2% on assets over £10 million.

Meadway says “you can get a long way with a wealth tax”, while Tax Justice UK also backs introducing one.

There has been a lot of opposition to introducing a wealth tax from the right-wing media and politicians. Wright said: “I think there has been a concerted effort, particularly since Labour was elected, by people who are very wealthy, very powerful and very well connected to basically avoid paying more tax”.

He said that this opposition was also seen in the backlash to Labour abolishing non-dom status. A report by migration consultancy Henley and Partners warned of “an exodus of millionaires” and was quoted by Conservative politicians and the right. The report was thoroughly debunked by the Tax Justice Network, who found its claims were overblown.

“There are very powerful and wealthy people who are pushing this narrative and the government is, given the economic situation, they’re understandably, quite nervous. They don’t want to be seen as anti-growth or anti-aspiration,” Wright said.

He added: “However I do think Labour could do with showing a bit more courage. And basically standing up to what are essentially vested interests.”

The government has so far ruled out introducing a wealth tax.

Gambling levy

It looks like the government could be set to hike taxes on gambling firms. There are three types of taxes on betting – an online games tax, a machine games tax and a general betting duty on sports fixtures and horseracing.

Meadway said: “There are a good few billions there, and that may well be something that the government does because it’s going after an obvious social bad and if you’re a gambling company making a load of money, it’s very hard to really justify that.” 

He added: “we do undertax, particularly on online gambling”.

Investing in the HMRC

More broadly, Wright says that the government should “invest heavily” in HM Revenue and Customs. He says that the tax gap, which is the difference between what the government should be receiving in tax revenue and what they actually receive is around £50 billion. The PCS Union thinks this figure could be up to £100 billion.

“So just for the government to be collecting what it should be collecting, it should be investing heavily in HMRC,” Wright said.

The government has agreed extra investment for 5,500 new compliance officers who will be hired to close the “tax gap”. 

Policies

Scrapping the two-child limit

Both Reeves and Keir Starmer have signalled that the two-child limit will be scrapped. The two-child limit, introduced by the Tories in 2017, means lower income families do not receive child benefit when they have a third child or subsequent children. It is estimated that getting rid of it will cost £3.5 billion a year by 2029/30. Think tank the Resolution Foundation, as well as the Child Poverty Action Group, say this policy is by far the most cost effective way of reducing child poverty. 

Charities have long been calling for the limit to be scrapped, and renewed these calls when Labour came to power in July 2024. Asked whether Labour should have scrapped the two-child limit sooner, Christensen said: “I think it’s just a good thing they’re potentially doing it now.”

He added: “We’re calling for the policy because it’s affordable, and would mean 480,000 fewer children are in poverty.”

No new PFI in the NHS

We Own It, a group which campaigns against privatisation, is urging the government to scrap their plans for new private finance deals in the NHS. In the 10 Year Health Plan for the NHS in England, Labour said it would “develop a business case for the use of public private partnerships (PPPs) for neighbourhood health centres, ahead of a final decision at the autumn budget”.

Sophie Conquest, Lead campaigner at We Own It told Left Foot Forward that “the NHS is still very much bearing the weight of the completely disastrous legacy of PFI [Private Finance Initiative]”.

Use of PFI was initially launched in 1992 under John Major’s government and came to its height under former prime minister Tony Blair.

According to new We Own It research, 80 NHS trusts are still set to pay out £44 billion for PFI deals signed under Tony Blair’s government.

“We’re seeing that NHS hospitals are having to pay out more on PFI debt repayments than they are on medicines for patients,” Conquest said.

Research by Every Doctor indicated that in the last five years, NHS trusts have spent £1.8 billion on PFI interest payments.

“That alone could have paid for the starting salaries of 50,000 new doctors,” Conquest added.

She said that funding new neighbourhood health centres using private finance would be “really destructive for patients and the NHS”. Conquest also said it would be a “betrayal” of Labour’s promise to keep the NHS publicly-owned and publicly-funded.

We’ll have to wait until Wednesday to see if Labour will rule out using new PFI deals in the NHS.

Olivia Barber is a reporter at Left Foot Forward