Amid widespread speculation of over what Chancellor Rachel Reeves may announce in her crucial first Budget, the Revenue and Reform report notes that tax rises are a certainty and a time-honoured tradition – since the 1990s, taxes have gone up by an average of £21bn over the first two fiscal events after an election.

Taxes are going up because, irrespective of new tax rises, the Chancellor has inherited £24bn of tax rises already announced by her predecessor Jeremy Hunt and given no indication that they will be reversed. However, while the scheduled rises in Fuel Duty – on track to exceed 6p per litre in 2025 – should remain in place, the report calls for the damaging rise in Stamp Duty next April to be cancelled so as to boost mobility, at a cost of £1.8bn.

The £10bn of tax rises in the Labour manifesto are also likely to be confirmed. However, with these notionally earmarked to spending commitments, additional tax rises will be needed as the Chancellor confronts both a £22bn departmental overspend this year – much of which will roll into future years – and inherited plans to cut funding to unprotected public services by £19bn, and with very little wriggle room against her fiscal rule of getting debt falling.

Furthermore, the Chancellor has greatly limited her revenue raising options by pledging not to raise the main rates of Income Tax, Corporation Tax, VAT or NI. In spite of this self-imposed constraint, the report shows how it is possible to raise around £20bn a year, and improve the efficiency of the tax system in the process.

Capital Gains Tax is ripe for reform, says the Foundation, as rates are unjustifiably lower compared to those on other forms of income. For example, employment income faces a top rate of tax of 53 per cent on their earnings, but some capital gains face a top tax rate of only 20 per cent.

To address this, the Foundation proposes aligning CGT rates for shares with dividend tax rates, taxing property capital gains like wages, introducing CGT exit charges when moving country, and applying it at death. Dividend and rental income tax rates should also be reformed. But these changes should be balanced with the reintroduction of inflation-indexing so as to create a tax-free rate of return which would particularly benefit long-term investments. Together this package of reform could raise anything up to £12bn.

The report notes that while there are many ways in which the taxation of pensions is inconsistent and unfair, the Chancellor’s best option would be to levy employer NI on employers’ pension contributions. Doing this at the same time as abolishing NI on employees’ pension contributions would leave a typical worker saving via auto-enrolment better off, while still raising £9bn overall, and would level out current arbitrary tax biases between different workers’ savings.

The Chancellor should also close loopholes in IHT that allow the very wealthy to avoid paying their fair share, and undermine public trust in the tax. Ending Business and Agricultural reliefs and bringing pension pots into IHT would raise £2bn.

The Foundation adds that as well as introducing these tax measures immediately, the government should get the ball rolling on important longer-term tax reforms to Business Rates (as promised in the manifesto), Council Tax and road pricing.

As more people switch to using Electric Vehicles (EV), the government can ill-afford to delay introducing a new motoring tax for EVs and civil servants should now be exploring the pros and cons of every option. The current system, which vastly favours those who can afford an EV, is set to drive a £17bn hole in the public finances by 2033-34 as EV take-up rises. This highlights the need to move to a system where all vehicles pay for road usage, says the report.

Adam Corlett

Adam Corlett, principal economist at the Resolution Foundation, said: “There is widespread speculation about what might be in the first Budget of the new Parliament, but overall tax rises are a dead cert and time-honoured tradition.

“The Labour manifesto included £10bn of tax rises, but fresh ones will be needed in order for Rachel Reeves to sufficiently fund public services and investment while still hitting her fiscal rules.

“The Chancellor’s self-imposed constraints on not raising Income Tax, VAT, NI or Corporation Tax don’t leave her much room for manoeuvre if she doesn’t want to break manifesto commitments. But there are still several areas of tax she should focus on.

“Long overdue reforms to IHT, CGT and pension contribution reliefs would fit the bill and could raise over £20bn if needed, while also making the tax system fairer and more consistent between different taxpayers.”