Resolution Foundation Urges Reeves to Rebalance Tax System with 2p NI Switch in Autumn Budget

Published: 23 September ‘2025. The English Chronicle Desk

Chancellor Rachel Reeves has been urged by influential economists to consider a major adjustment to the UK tax system in her upcoming autumn budget, which could see employee national insurance contributions reduced by 2p while the equivalent sum is added to income tax rates. The proposal, set forth by the Resolution Foundation thinktank, is being described as a mechanism to raise billions of pounds while protecting the take-home pay of working-age employees.

The thinktank, known for its close engagement with Labour policymakers, outlined a package of reforms designed to address long-standing inequities in the tax system. The core proposal, a so-called “2p switch,” would remove 2p from employee national insurance contributions but raise income tax rates across all bands. According to the report, the policy could generate up to £6 billion annually, as income tax encompasses a far wider group of taxpayers, including pensioners, self-employed individuals, and property owners. While income tax is devolved in Scotland and Wales, the Resolution Foundation expects both administrations would follow a similar approach to that proposed for England and Northern Ireland.

Advocates of the measure argue that it would help level the playing field by broadening the tax base while preserving the disposable income of employees. By effectively shifting the burden from employee-specific national insurance contributions to income tax, the policy would build upon the 4p national insurance reduction introduced by the former Conservative chancellor, Jeremy Hunt, which cost the Treasury £20 billion annually. Hunt had argued that national insurance represented a double tax on earnings, and the Resolution Foundation’s proposal seeks to address this imbalance more comprehensively by spreading the tax load across a wider population.

However, the recommendation is not without political risk. Raising income tax—even indirectly—could be seen as contradicting Labour’s manifesto pledge not to increase this tax, leaving Reeves vulnerable to criticism from opposition parties and sceptical media. Nonetheless, proponents maintain that the approach preserves working households’ earnings while generating additional funds to support public services, making it politically viable if framed carefully.

The autumn budget, scheduled for 26 November, comes amid intense scrutiny of Labour’s economic stewardship. Observers have raised concerns over high borrowing costs, the potential impact of recent welfare policy reversals, and a looming productivity downgrade from the Office for Budget Responsibility, all of which could result in a fiscal shortfall of up to £40 billion against self-imposed fiscal rules. Reeves has so far remained cautious about revealing tax intentions, focusing instead on economic growth initiatives to bolster Treasury revenues.

Leading the budget preparations, Torsten Bell, formerly chief executive of the Resolution Foundation and now the pensions minister, has played a key advisory role. Dan Tomlinson, a former researcher at the thinktank, has been appointed junior Treasury minister with responsibilities for tax measures, reflecting the influence of Resolution Foundation expertise within the Treasury team. Their involvement underscores the alignment of the proposed reforms with broader Labour economic policy objectives.

The Resolution Foundation report presents the 2p national insurance adjustment as part of a larger £30 billion package aimed at overhauling elements of the UK’s £1 trillion tax system. Beyond the switch in employee contributions, the thinktank recommends measures to extend employer national insurance to limited liability partnerships, including major law firms, as well as enhanced enforcement against unpaid small-business corporation tax. These measures are intended to reduce loopholes that disproportionately benefit wealthier entities and ensure a fairer distribution of the tax burden.

Additional recommendations focus on environmental and public health interventions, including a broader sugar and salt levy, a carbon charge for long-haul flights and shipping, and adjustments to vehicle excise duty to reflect the road damage, noise, and air pollution caused by heavier vehicles. The report contends that these measures would allow the Treasury to generate revenue while minimizing adverse impacts on ordinary workers and maintaining incentives for sustainable behaviour.

Adam Corlett, principal economist at the Resolution Foundation, emphasized the practicality of the proposed reforms, stating: “These sensible changes would increase government revenue while causing the least possible disruption to working households and the wider economy. By taking decisive action, the chancellor can ensure the budget supports both fairness and economic growth.”

Commenting on the proposal, a Treasury spokesperson noted: “The chancellor makes tax policy decisions at fiscal events. We do not comment on speculation regarding potential future changes to tax policy.” Despite this cautious stance, the Resolution Foundation’s recommendations are expected to play a significant role in shaping public debate ahead of the budget, particularly as attention turns to how the government intends to balance fiscal responsibility with fairness in the taxation system.

Economists argue that the “2p switch” could reconcile competing pressures on the government: providing a funding boost to essential public services while avoiding direct cuts to household incomes. It is also seen as a tool to simplify the tax landscape by addressing the inherent disparities between income tax and employee national insurance contributions. By shifting revenue collection to a broader base, the policy could make taxation more progressive and inclusive, ensuring that wealthier taxpayers and a wider cross-section of society contribute proportionately.

The autumn budget will be closely watched, both for its economic implications and its political ramifications. Labour ministers, navigating the dual challenges of maintaining manifesto commitments and ensuring fiscal stability, face difficult choices in determining how to raise revenue without undermining public confidence. The Resolution Foundation’s proposals, including the 2p NI switch and associated measures, are likely to be at the centre of discussions around achieving these objectives while safeguarding working households’ pay packets.

As the government prepares for the budget, analysts suggest that a careful presentation of the reforms could frame them as a step toward fairness and efficiency in the tax system, rather than as an increase in the overall tax burden. By emphasising the protective measures for employees and the expansion of contributions to include those previously less affected, the government could potentially secure public acceptance while delivering significant fiscal benefits.

Ultimately, the debate over the autumn budget highlights the ongoing tension between fairness, economic growth, and political feasibility. The Resolution Foundation’s recommendations illustrate one pathway for achieving these goals: ensuring that the tax system is equitable, protecting workers’ incomes, and raising the necessary funds to meet public service obligations. How Reeves responds will not only set the tone for the forthcoming budget but also signal Labour’s approach to balancing progressive taxation with economic pragmatism in the current fiscal environment.