Rachel Reeves has walked herself into a trap of her own design. She promised not to raise income tax, VAT, NI, or corporation tax. That leaves her fishing down the back of the fiscal sofa for loose change, all while Trump’s tariffs, a sluggish economy, and crumbling public services demand tens of billions.
Now the Resolution Foundation offers a conjuring trick: add 2p to income tax, shave 2p off NI, and call it a wash. Except it isn’t. Pensioners, landlords, and those with investment income pay income tax but not NI, so the state nets £6bn. On paper it’s clever. In practice it reeks of the very sophistry voters hate.
Labour will be damned either way. Break the pledge outright and Starmer looks like every other politician who promised restraint before soaking the middle. Pretend the NI-to-tax shuffle isn’t a rise and they look slippery and dishonest. Reeves already got burned once, claiming an NI rise wasn’t really a tax on “working people.” Try it again and Reform UK will roast her alive.
The deeper problem isn’t this or that fiscal wheeze. It’s the straitjacket Labour chose: Scandinavian-style services promised on American tax rates, policed by self-imposed fiscal rules designed to keep capital sweet. No Budget can square that circle. That’s why Reeves is condemned to deal in stealth, gimmicks and rhetorical acrobatics, rather than facing the truth head-on: the state needs more money, and it has to come from those with the greatest means to pay.
Put 2p on income tax if you like, but be honest about it. Honesty, though, is what the Labour frontbench fears most. They think voters cannot take it. They may be right. But the alternative is worse: a government of hair-splitting evasions, permanent austerity, and broken promises dressed up as fiscal responsibility.