Rachel Reeves, the Chancellor of the Exchequer, is being urged to implement a 2p reduction in the rate of employee national insurance, reallocating it to income tax in her upcoming autumn budget. The Resolution Foundation, a prominent thinktank, has proposed this change as part of a broader strategy to raise approximately £30 billion, thereby addressing perceived inequities in income taxation.
The Resolution Foundation’s report suggests that reducing employee national insurance by 2p, while increasing all income tax bands correspondingly, could yield an additional £6 billion annually. This adjustment is rooted in the observation that income tax encompasses a wider pool of taxpayers, including pensioners, landlords, and self-employed individuals. Although income tax structures are decentralized in Scotland and Wales, the Foundation expects similar adjustments could be made there.
While the thinktank asserts this approach would tackle “unfairness” in the tax system, it could also conflict with Labour’s commitment not to raise income tax, a promise made in their manifesto. Nonetheless, the proposed shift would not impact employee tax rates directly and aims to retain workers’ take-home pay.
As Reeves prepares for her budget announcement scheduled for November 26, she faces scrutiny regarding Labour’s fiscal management amidst discussions of potential tax hikes. Economic analysts express concern that factors such as recent policy reversals and increased borrowing costs might lead to a financial shortfall of up to £40 billion against her stated fiscal goals.
In addition to the proposed changes to national insurance and income tax, the Resolution Foundation has offered a series of other recommendations, such as extending employer national insurance to partnerships, implementing a broader sugar and salt tax, introducing a carbon charge for long-haul travel, and revising vehicle excise duty to better reflect environmental costs.
A Treasury spokesperson stated that tax policy decisions are made during fiscal events and declined to comment on speculative future changes to tax policies.
Source: https://www.theguardian.com/uk-news/2025/sep/23/reeves-urged-to-take-2p-off-employee-ni-and-add-it-to-income-tax-in-budget