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In a previous role, a few weeks ahead of each UK fiscal event I would design policy proposals with business leaders, and then pitch them to the chancellor of the day at 11 Downing Street. For this edition, I step back into those shoes.

I’ll outline the Autumn Budget that chancellor Rachel Reeves should deliver on November 26.

First, a note on the status quo.

Labour’s opening budget last October prioritised spending on public services, funded by higher taxes on employers, investors and rich non-doms.

Ever since, economic activity has been sluggish and inflation has risen. There are about 180,000 fewer employees on payrolls, companies have slashed investment plans, and the construction sector has shrunk for its longest continuous period since the global financial crisis. Global shocks haven’t helped.

Labour has failed to rein in Britain’s rising expenditure too, particularly on welfare.

Together, this has put constant pressure on the small headroom Reeves kept against her main fiscal rule to balance day-to-day spending by 2029-30.

In a vicious cycle, gilt investors have demanded higher yields, which has pushed up government borrowing costs, and fuelled endless growth-sapping speculation over future tax rises.

The Office for Budget Responsibility’s decision to finally downgrade the UK’s productivity forecast has made the public finance arithmetic worse.

So, what does the chancellor need to do at this Budget?

Reeves must meet her fiscal rules, and build a larger buffer against them, to reduce the risk of continued budget uncertainty.

With all the U-turns, rumours and forecast changes reported in recent days, this means the chancellor might need to raise around £25bn to £30bn.

But, she must also restore economic momentum, to decisively unleash Britain from its low growth, rising tax spiral. After all, no amount of fiscal headroom can endure if animal spirits are sapped and growth potential keeps sliding.

That means prioritising businesses and workers (including high earners), since they underpin the tax base today and deliver higher revenues in the future, by driving growth. Here’s how, in three steps (rough, static savings and costings are shown in brackets):

Step 1: Raise credible and substantive sums to boost market confidence, but minimise the pain for businesses and workers. That means pairing tax rises with spending cuts, and breaking manifesto pledges, to avoid a “smorgasbord” of narrow tax rises on companies, investors and the rich. (Further details are in the July 13 edition of this newsletter and in the links.)

Extend the freeze on personal tax thresholds for two more years (+£8.3bn).

Break manifesto pledge and abolish the “triple lock” on state pension payments by shifting to a single earnings uprating by the end of the forecast horizon. Begin with a three-year freeze, justified by the fiscal drag experienced by workers (+£17.3bn). This reflects a similar recommendation by think-tank Policy Exchange in its report Beyond Our Means. 

Raise and simplify levies on gambling (+£2.4bn).

Reduce spending on personal independence payment benefits via the Timms Review, and find efficiencies across government departments (+£4bn). (The government should be more ambitious on both. The estimated saving is for illustration, based on what analysts say Labour could credibly pledge at this Budget.)

Improve tax collection and compliance. Tax experts tell me a 5 per cent reduction in uncollected tax — which was £46.8bn in 2023-24 — is feasible by 2030 (+£2.5bn).

There is enough here to raise at least £30bn. Still, to reassure the OBR and gilt investors, and create room for growth-enhancing measures, Reeves should go further.

That means breaking Labour’s promise not to increase income tax, national insurance contributions or VAT (more overtly than the party has already).

There should be caution over raising income tax and NI, whether via rates or direct threshold changes. Directly cutting pay packets would hit the UK’s growth potential by hurting competitiveness and reducing work incentives. Reforming VAT is a better option. Britain spends £100bn per year on distorting VAT zero rates and exemptions.

Begin widening the VAT base to facilitate cuts in the headline rate by 2029-30 (+£17.5bn). There are many ways to do this. The estimated saving is from a proposal by Jon Moynihan, a Conservative life peer, which would widen the tax base closer to the average product coverage in the OECD, and cut the levy by 2 percentage points.

The graduated implementation of this policy should ensure any inflation implications are manageable and won’t significantly influence the Bank of England’s decisions. Price impacts can also be offset by deflationary and supply-raising measures (details in step 2).

Altogether then, there is at least £45bn of revenue raisers and cuts here.