Reeves should be more ambitious on tax reform to boost economic growth – IFS

Rachel Reeves shied away from meaningful reforms which could “move the dial” on economic growth, a leading think tank has said.

The Institute for Fiscal Studies’ (IFS) director Helen Miller called on the Chancellor to be more ambitious about measures to boost growth, and singled out reforms to the tax system as a means to do this.

The warnings comes after the Office for Budget Responsibility (OBR) downgraded its medium term growth forecasts in its Budget analysis.

The budget watchdog forecast gross domestic product would grow by 1.5% this year, an increase from its earlier 1% forecast.

But it downgraded growth in 2026 from 1.9% to 1.4%, in 2027 from 1.8% to 1.5%, in 2028 from 1.7% to 1.5% and in 2029 from 1.8% to 1.5%.

As the IFS gave its detailed analysis of the Budget, Ms Miller said: “Growth not only makes us richer, it makes almost every problem easier to solve. At the last Budget the Chancellor said: ‘Every Budget I deliver will be focused on our mission to growth the economy.’ That wasn’t on show yesterday.

“It was never going to be possible to do such a large tax rise and have that be good for growth. But – and I am fully aware that I sound like a broken record here – tax reform was the way to ensure that taxes don’t do more damage that necessary.”

She added: “The Chancellor, like her predecessors, continues to shy away from meaningful tax reform that could move the dial. This felt mostly like the Budget of a Government trying to scrape through.

“Of course, no fiscal event can do everything, and reform is hard. But given the scale of the challenges we face, and given the Government’s lofty rhetoric about change, and its ambitions on growth, I think we’re entitled to ask for more.”

The Government may be able to “devote its bandwidth to the challenge of how to boost productivity and growth” now the period of heavy speculation ahead of the Budget is over, she added.

Ms Miller’s predecessor as IFS chief, Paul Johnson, has also been among those urging the Chancellor to grasp the nettle of tax reform.

Amid reports that a new “mansion tax” levied on properties worth more than £2 million would be in the Budget, he urged ministers to go further and instigate a full revaluation of council tax bands.

Ms Miller agreed, adding: “We will now have two property taxes based on different valuations. And people ask why our tax system is too complex – one reason is because it’s often seen as easier to add something than to fix what we already have.”