'It’s time for Rachel Reeves to secure her legacy'

Amid all the speculation about how big the “black hole” in the public finances might be, and which taxes will have to go up to fill it, one point is easily missed about the Budget set for next month: that it is likely to be the last one Rachel Reeves delivers. With the economy stagnating, unemployment rising, and the government dropping to 20% or less in many of the opinion polls, and to only 11% in the Caerphilly by-election last week, her position is looking more and more untenable. If prime minister Keir Starmer is ousted, then she will surely go as well. If he survives, Reeves is an easy scapegoat, and she can be reshuffled out of office the next time the government needs a refresh. Either way, Reeves looks finished. Indeed, it is possible she is only still in office so she can deliver deeply unpopular tax rises and will then be replaced soon afterwards.

If she does not have much time left, she should try to secure a legacy. She does not have any money to play with, so she can’t embark on any major spending projects. But there is still plenty she could do. First, announce a cross-party Royal Commission on tax simplification. We can all argue about whether tax should be going up or down. But there is one point everyone can surely agree on. The tax system has become an incoherent mess that is buckling under the weight of its own absurd complexity.

Over the last quarter of a century, the size of the UK’s tax laws has more than tripled, and now runs to a combined 21,000 pages, and more than ten million words. Green levies and sin taxes designed to reward anything the government happens to approve of and punish anything it doesn’t like mean it keeps on getting bigger and bigger. A Royal Commission could redesign the system from the bottom up, with the aim of raising the same amount of total revenue, but doing so in the simplest way possible. If all the major parties contributed to it, it might even have a chance of sticking, and that could be a major improvement.

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Rachel Reeves should scrap the maximum wage

Next, fix the 60% tax trap. Of all the anomalies in the UK’s tax system, it is by far the worst. Given that the personal allowance is gradually withdrawn on incomes between £100,0000 and £125,000 a year, it means that as soon as someone goes into a six-figure salary, their marginal tax rate goes up to 60%. If you add in student-loan repayments, which are effectively a tax, it can go up to 70%.

Nearly 700,000 people are already paying that rate, and it has doubled over the last six years. With frozen thresholds, it will go even higher. You don’t have to be a fully signed-up believer in the Laffer curve to agree that a 60% marginal tax rate is a major disincentive. The UK has come close to imposing a maximum wage of £100,000 a year, with many of the brightest, hardest-working people deciding not to bother going above that level. It is crazy. Reeves should set out plans to fix it. She would probably find it raised more money.

Finally, as the first female chancellor, Reeves should do something for women. The one major reform she could make would be to make childcare fully tax-deductible, as it is in many other countries. The soaring costs of getting someone to look after the children mean that many young parents can’t afford to carry on working, and one or other of them has to stay at home instead. In the real world, that is usually the mother. The result? After the break, their careers never catch up. By allowing the cost to be set against tax, it would be far easier for women to stay in work and start a family at the same time.

By any measure, Reeves has been a dreadful chancellor. In opposition, she lectured everyone on her expertise in economics and promised bold reforms that would unlock investment, boost growth and make the UK far more prosperous. Instead, and even with a huge majority, she has squandered the opportunity she was given. It is hard to see her remaining in office for another whole year, especially if inflation stays above 4%, and growth is nonexistent. Even so, she could at least depart with some dignity – by making the long-term reforms that would secure her a meaningful legacy.

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