Significant changes to the UK's tax system are reportedly being finalised by the Labour government ahead of the Autumn Budget, with a new 'two up, two down' approach set to reshape the financial landscape for workers and retirees alike.
The Core Tax Shift
According to analysis from the Resolution Foundation, the proposed plan involves simultaneously increasing income tax rates by two percentage points while cutting National Insurance contributions by the same margin. This method is projected to raise an additional £6 billion in revenue while ostensibly protecting the take-home pay of employed workers.
The Times reported that Chancellor Rachel Reeves is considering limiting the National Insurance cut to basic rate taxpayers—those earning up to £50,270—to ensure wealthier individuals contribute more. An ally of the chancellor stated this addresses an 'institutional bias towards the older generation at the expense of the younger' from the previous government.
Who Wins and Who Loses?
While the policy is designed to cancel out the income tax hit for employees, it creates a clear division in its impact. Pensioners, landlords, and savers—who pay income tax but not National Insurance—will face substantially higher tax bills without the compensating cut.
Tom Selby, director of public policy at AJ Bell, provided stark figures: 'Someone with a taxable retirement income of £35,000 would face a tax hike of almost £450, while a pensioner with an income of £65,000 would be stung with a tax increase of more than £1,000.'
Selby added that while targeting pensioners would be unpopular, especially after the winter fuel payment controversy, it might be viewed as 'the least bad option' politically.
Political Calculations and Trust
The government faces a delicate balancing act between its manifesto commitments. One senior Labour figure framed it as a choice between 'breaking the narrow manifesto commitment on tax, and breaking the broader manifesto promise to deliver change.'
A cabinet minister emphasised that 'levelling with the public' was the best strategy to retain trust, acknowledging the severe economic challenges facing the country. The Observer has reported that the new tax scheme is now 'nailed on' for the upcoming budget announcement.
The final judgement, as one figure noted, will come at the next election, where the government will be assessed on whether it has successfully delivered the change it promised.
