Rachel Reeves under fire as think tank tells her to hit pensioners with new tax shake up

Rachel Reeves is facing fresh pressure over how she plans to balance the books, with a Labour-linked think tank urging her to shift the tax burden away from younger workers and onto pensioners. The Resolution Foundation has put forward proposals it claims could raise billions while easing the strain on salaries.

The think tank has suggested the Chancellor increase income tax by two per cent while at the same time cutting National Insurance contributions by the same amount.

The idea is that workers wouldn’t lose out because the NI cut would cancel out the tax rise, but the change would pull in around £6 billion since pensioners and the self-employed also pay income tax, reported GB News.

The link between the Foundation and Labour is a close one. Treasury Minister Torsten Bell is the group’s former chief executive and is said to be advising Reeves as she prepares to tackle what has been described as a “black hole” in the nation’s finances ahead of the Autumn Budget.

Alongside the income tax plan, the Foundation has suggested several other ways to raise funds. Ideas on the table include levies on small businesses, a sugar tax hike, a carbon charge for long-haul flights and shipping, and tweaks to vehicle excise duty. Together, those changes could raise around £4 billion each year.

Adam Corlett, the group’s principal economist, argued that the Chancellor should avoid piling further pressure on workers’ wages. He said: “Any tax rises are likely to be painful but given the fallout from the recent employer NI rise, the Chancellor should do all she can to avoid loading further pain onto workers’ pay packets. She can do this by switching our tax base away from employee National Insurance and onto income tax, which is paid by a far broader group in society.”

He went on to say: “This should form part of wider efforts to level the playing field on tax, such as ensuring that lawyers and landlords face the same tax rates as their clients and tenants. These sensible reforms would raise revenue while doing the least possible harm to workers and the wider economy. And by acting decisively, the Chancellor can turn her attention on to securing stronger economic growth.”

The think tank also called on Reeves to reduce the current £90,000 VAT threshold, arguing it discourages small businesses from expanding. It warned that tax avoidance among smaller firms is costing the Treasury around £15 billion a year and urged the Government to crack down on companies dodging corporation tax.

The push for reform comes at a time when older Britons are already under the spotlight. Just days ago, financial experts advised pensioners not to make rash decisions about their retirement funds, pointing out that fear and speculation were leading many to withdraw large sums.

Figures from the Financial Conduct Authority show that pension savers took out over £70 billion in 2024/25, a jump of nearly 36 per cent compared with the £52 billion withdrawn the previous year.

Eamonn Prendergast, a financial planning adviser at Palantir, warned: “Pension pots are designed to last decades, not be raided in panic. The Government must do more to quash rumours early and give clarity.”