IEA unveils £75bn tax-cutting Budget plan with £21bn employer NI reduction

Britain’s tax system should be overhauled to cut the cost of employment, abolish major property taxes and rein in public spending, according to a £75bn alternative Budget unveiled by the Institute of Economic Affairs ahead of the Chancellor’s fiscal statement.

The proposals would reduce income tax and employee National Insurance for a worker earning the median wage by £644 a year. Including lower employer National Insurance contributions, the total tax burden on a median-paid job would fall by about £1,300 annually.

The plan offers a radical alternative to raising taxes to repair the public finances. It would cut employer National Insurance to a flat rate of 11.5 per cent, saving businesses almost £21bn in 2027-28, while abolishing stamp duty in England and Northern Ireland and scrapping inheritance tax from April 2027.

The IEA estimates those property-tax changes would reduce revenues by £19.2bn and £11.2bn respectively in 2027-28.

To help finance the cuts, the think-tank proposes extending the existing 20 per cent VAT rate to more goods and services, including food, water and passenger transport. The measure is forecast to raise about £75bn in 2027-28, shifting more of the tax burden towards consumption.

The package also includes tighter welfare spending controls, suspension of the state pension triple lock and a freeze in the basic state pension. The IEA estimates these reforms would generate net savings of £11.9bn in 2027-28, rising to £56.7bn by 2030-31.

The group projects a £7.8bn current-budget surplus in 2027-28 and net debt falling to 91.6 per cent of GDP by 2030-31, without assuming additional revenue from faster economic growth.

Lord Hannan, the IEA’s director-general, said: “Britain cannot tax its way to prosperity.”

The proposals also include tariff abolition, faster planning decisions, scrapping compulsory electric-car sales targets and a new Defence Bond for stocks and shares ISAs. The annual ISA allowance would rise from £20,000 to £50,000, with proceeds from the bonds ring-fenced for defence spending.

The package would represent a substantial redistribution of the tax burden, making work and property transactions cheaper while increasing the cost of many everyday purchases and restraining pension and welfare spending. Its political challenge will be whether ministers and voters accept those trade-offs.