As she presents her Autumn Budget on Wednesday, Chancellor Rachel Reeves must contend with sluggish productivity, restrictive fiscal rules and restive backbenchers. The likelihood is that she will again raise the tax burden. Stray but a little, and she will trigger a sell-off of gilts — posing further danger to the economy and to Keir Starmer’s government.
Are there more imaginative ideas out there? Gathered by UnHerd, a selection of economists and other experts — including the Reagan adviser Arthur Laffer, the guerrilla pro-growth activist Joe Reeve, and the former Greek finance minister Yanis Varoufakis — offer suggestions of their own.
***
Abolish the OBR
By Jonny Ball, contributing editor at UnHerd
In 2016, a referendum was won under the slogan “Take Back Control”. Brexit was a project framed around a restoration of sovereignty, for the decisions of the elected legislature to override those of a bureaucratic supranational state.
Having extricated ourselves from the opaque, undemocratic rule of Brussels and Strasbourg, we remain shackled to another undemocratic mess: a bizarre, byzantine patchwork of quasi-autonomous bodies that limit the ambitions of the executive and constrain the decision-making of elected politicians. No other organisation encapsulates this trend better than the Office for Budget Responsibility.
This week’s Budget should be the last written under the de facto control of this failed Cameroon creation. Established to prevent government profligacy in the wake of the financial crisis, it has instead tied the hands of successive chancellors to a rigid fiscal orthodoxy based on wildly inaccurate forecasts. It has a remit to scrutinise policy costings and evaluate the government’s performance against its own fiscal targets, with Rachel Reeves strengthening its powers upon entering No 11 by legislating so that no Treasury can bypass its bean-counting processes (her so-called “fiscal lock”). But its interpretations are notoriously fallible, conforming to the famous description of economics as “the dismal science”. Governments are left chasing their own tails, fighting to fill “black holes” that refer to (invariably incorrect) OBR predictions about tax and non-discretionary spending years into the future. These predictions have about as much accuracy as could be gleaned from reading tea-leaves.
The sins of the OBR’s modelling are many. It consistently underestimates the multiplier effects of infrastructure projects. It fails to take into account the true level of private sector activity that results from having properly functioning national assets. This means that it does not adequately distinguish between day-to-day revenue spending (on public sector wages, pensions and benefits, for example), and making long-term investments (in areas such as road and rail networks, energy generation and grid upgrades, digital connectivity, or even R&D). As a result, we overspend on the things we won’t get a return on, and underspend on investments of lasting benefit.
Rather than taking into account the full value of long-term investment, the parsimonious approach of the OBR turns book-balancing and debt reduction into a quasi-religious exercise spread over narrow five-year periods. To once again take back control, the Chancellor should exit a doom-loop that locks us into perennially low productivity, low growth, and a rapidly depleting public realm.
***
Cut taxes and welfare
By Arthur Laffer, Reagan adviser who gave his name to the “Laffer Curve”
Independence from Britain is celebrated on average every seven days around the world. Britain’s descent has been almost as great as her preeminence once was — all due to taxing and regulating those who produce and indulging and paying people not to produce. Think of it — which do you think is better for Britain? a) paying people not to work, or b) cutting tax rates on people who do work? Your choice.
***
Make nuclear power viable again
By Joe Reeve, co-founder of Looking for Growth
Every time you put the heating on, you’re paying for Britain’s broken energy system. We were the first country to build nuclear power, but now it takes decades and costs more here than anywhere else. So we buy power from abroad — and every family pays for it in higher bills.
Cheap energy is the foundation of prosperity. The UK pays four times more for energy than the USA. That’s why our economy has flatlined while theirs grows.
The government just spent £1 billion subsidising energy bills for millionaires because we failed to build cheap energy. This is backwards. We need to stop subsidising demand and start fixing supply.
The Nuclear Regulatory Review just declared Britain’s nuclear regulator “broken” and showed how to fix it: merge eight fragmented bodies into one, have the Government set risk standards instead of risk-averse regulators, use a fleet approach to approve designs once and roll them out nationwide, and stop legal delays by eliminating duplicative processes.
Rachel Reeves can make this happen. Treasury approval and fiscal rules determine whether nuclear gets built, and the Chancellor can put pressure on the Prime Minister. Even better for Labour, they can claim a win before 2029: streamlined approvals mean small modular reactors can break ground and create jobs within this Parliament.
This unlocks everything. Cheap power means competitive energy for business, AI data centres, and real growth. It means there will be no need for winter fuel payouts. Labour must accept all the recommendations of the report.
Stop subsidising failure. Let Britain build. Nuclear power is how we cut bills for good.
***
Bite the bullet
By John Rapley, political economist
The original sin of the Chancellorship of Rachel Reeves was committed in the 2024 election campaign, when she made a promise she could never keep: to grow the economy and improve public services without raising taxes on working people. Ever since, she’s been bedevilled by a game of whack-a-mole in which she fiddles constantly with the tax system in ways that never seem to raise enough money but do little to stir growth.
The result is that both her tenure and the premiership of Keir Starmer now look imperilled. On its current path, the Labour Party is headed for a trouncing in the spring elections, whereupon a rebellion against Starmer looks likely. Given how closely Starmer and Reeves are bound together, her time as Chancellor may thus be running out.
So why not secure her legacy now? Reeves can make a major change which, if sufficiently unpopular to almost guarantee the end of her tenure, would put Britain on a more solid footing for the long term: raise income taxes.
As Scandinavian countries show, the most sustainable welfare states are those which are based on a broad social contract — that the price of citizenship secures its benefits. Polls repeatedly show that Britons want good pensions and healthcare but also want someone else to pay for it. Someone must resolve that tension, and doing it might send Reeves down in flames, but secure her place in history. But I won’t be placing any large bets on it.
***
Introduced tiered reserve payments
By James Meadway, economist
Through a happy coincidence, the £20 billion that Rachel Reeves is likely to need to find in order to meet her own self-imposed and badly-written fiscal rules this week is the same amount the Government will hand over to the Bank of England to cover its notional losses on its quantitative easing programme. If Reeves wants to do one useful thing next week, rather than a smorgasbord of badly judged ones, she could cut these payments dramatically.
Launched in 2009, as a novel wheeze to support a flailing economy in the teeth of the global financial crisis, QE involves the Bank of England issuing new money in the form of its reserves, which it then uses to buy (mostly) UK government bonds from the financial institutions holding them. The idea, originally, was to encourage panicked banks to lend more; in 2020, with the exceptional spending demands of the pandemic, the same QE process was used as a backdoor means of financing government borrowing.
The result was that the Bank was paying interest to commercial banks on the reserves that it had given them, whilst receiving interest payments on the bonds it had bought. As interest rates have risen, the interest payments on those reserves have risen far above the payments it receives on bonds: by the Bank’s estimates, this difference is around a £150 billion loss over the lifetime of the QE programme. The only beneficiaries of these payments are the commercial banks, whose already substantial profits have been inflated by the Bank of England’s generosity.
The Bank claims the payments are necessary to allow its interest rate setting to work effectively. But as its own former deputy governor Paul Tucker has pointed out, these payments don’t need to be made on the whole amount held. A “tiered reserve” system, where the Bank pays interest on a small part of the reserves, would work just as well. Savings could be very substantial: perhaps, on calculations by the New Economics Foundation, £11.5 billion a year could be saved.
The commercial banks won’t like it. They lose interest payments. But for the rest of us, and surely for a Chancellor desperately scrabbling for cash, it’s close to a no-brainer.
***
Break the triple lock, bring in optional property tax
By Julia Willemyns, co-founder of the Centre for British Progress
The arithmetic is brutal. Gilt yields are climbing, the OBR’s headroom has evaporated, and the government has boxed itself in with pledges not to raise major taxes. Our debt interest payments are larger than our defence budget. Demographic pressures are intensifying. The Chancellor needs to find billions without breaking promises, raise revenue without killing growth, and keep bond markets onside.
Most Budget choices in this environment involve painful trade-offs. But two reforms could improve both fiscal position and economic efficiency: fixing the triple lock formula and replacing stamp duty with an annual property tax.
The triple lock is broken. It double-counts price increases: when inflation spikes one year and feeds into wage growth the next, pensions rise twice for the same underlying cost increase. Pensions have risen far faster than forecast. The OBR projects it will add 1.6 percentage points of GDP to state spending over 50 years (£46 billion annually in today’s money).
My preferred solution measures earnings growth and the 2.5% floor over 10 years rather than 12 months, while keeping the annual inflation lock unchanged. This makes the earnings component more stable and prevents double-counting. Pensions would match inflation annually and increase with earnings. Modelling suggests savings of £6.2 billion by 2030, rising to £36 billion by 2040. Crucially, it makes future spending more predictable.
We should also reconsider stamp duty. It is textbook bad tax. It punishes economically beneficial activity (moving house), creates massive deadweight loss, and can be entirely avoided. We should replace stamp duty with an optional property tax: buyers choose upfront stamp duty or switch to a modest annual charge. You could phase this over 10 years and add a 0.5% rate on property values above £2 million to ensure immediate revenue positivity.
The maths work. Modelling shows this generates £1.7 billion above the Stamp Duty Land Tax baseline in year one, rising to £8 billion annually by 2050. It also transforms volatile, pro-cyclical revenue into predictable, stable receipts.
This is what good fiscal policy looks like: reforms making politically popular institutions sustainable, and revenue that grows the economy rather than strangling it.
***
Help companies buy machine tools
By Rian Chad Whitton, industrial analyst
Britain spends a remarkable amount on industrial policy. The OECD claims we spend 2.7% of GDP on industrial policy measures. Compared to other countries, we are heavily weighted towards providing tax reliefs and grants for small businesses, research and development, and funding for “skills”. But despite all of this, we have a massive problem with capital equipment spending.
Currently, UK machine tool consumption is just 61% of France’s, 40% of Turkey’s, and 15% of Germany’s. We spend under £500 million on industrial robots annually, and we have a lower robot-to-worker ratio than the global average. This shortfall limits our productive capacity and our attractiveness as a location for manufacturers to invest in. We need these machines, and we need them fast.
I propose a £1 billion machine financing fund to help companies buy machine tools and industrial robots. This would effectively double British industry’s spending capacity for automation. This would mean a rapid uptake in installations, as well as allowing firms to spend more freely on new employees and facilities. These investments are initially challenging for companies, as they usually take a short hit in profits. Targeted government support in this space would provide much-needed stability.
Though not a large amount of money in budgetary terms, it should still be financed by making cuts elsewhere. The government could cut the £900 million earmarked for the seventh CfD auction, which will lock in expensive electricity generation. There could also be a significant tightening up on R&D tax credit relief. This year, over £400 million was lost in R&D relief-related error and fraud. We could also cut the boiler upgrade scheme subsidy of £205 million.
Importantly, this £1 billion would not be dressed up as an investment in innovation or start-ups. Its purpose would be to provide capital equipment to established companies, whether they be large multinational or family-run machine shops. This is a notable area of weakness for Britain, and the situation can be rapidly improved through a simple reallocation of spending.
Establish a national investment bank
By Yanis Varoufakis, economist and former Greek Minister of Finance
Upon winning office, the Government should have established a national investment bank (NIB) to finance green and advanced technology enterprises to the tune of no less than 3% of national income (or around £90 billion) annually. As I wrote last week, the money would not come from the sale of UK government bonds but from bonds issued by NIB itself, to be repaid not from taxation but from the future profits of the green projects it funds. All it would take for NIB bonds to sell like hot cakes would be an announcement by the Bank of England that it is standing by, ready, if need be, to purchase these bonds on the secondary market.
The NIB should still be established. By now, Reeves should know that it is foolish to allow fiscal rules and narrow cash calculations to prevent necessary enterprise. “Anything we can do, we can afford,” J.M. Keynes said in 1942. The problem in the UK today is that, after decades of reducing the state’s capacity to do things, there is little that can be done well. Only by investing public money can Britain’s productive frontier expand again, drawing in private investment in pursuit of common goals.
Development and prosperity will not come because Reeves peppers every speech with a hundred mentions of the word “growth”. It will not happen because she appeases the City by continuing to sign bankers’ welfare cheques at the behest of the Bank of England. And it certainly won’t transpire if she remains determined above all else to prove her fiscal orthodoxy to conservative critics who will never give her the light of day anyway. Mindless fiscal rules will only worsen the country’s stagnation.
***
Boost public sector investment
By David Owen, founder and chief economist of Saltmarsh Economics
In ideal circumstances, pre-Budget purdah would have been strictly enforced. And, as others like the National Institute of Economic and Social Research (NIESR) have recommended, Rachel Reeves would move to only one major fiscal event a year, with the OBR focused much more on long-term debt sustainability.
The fiscal rules would be tweaked to give much more headroom for the Chancellor to boost long-term public sector investment, helping crowd in private sector spending and improve the UK’s dire productivity performances. Public sector net worth would be targeted, not net financial liabilities of the public sector — for the current measure that does not take account of any value of long-term investment projects, only the debt incurred in undertaking them.
Former heads of the Civil Service would have advised on what really went wrong on their watch, in terms of contracts struck with the private sector, and with privatisations. How come so many of them down the years have proved so costly and led to such bad outturns? Why is public sector productivity so dismal? Lessons would have been learnt.
Long-term enhanced capital allowances and other measures would be introduced specifically targeted on the eight sectors that the government’s June 2035 industrial strategy document singled out as key in improving the UK’s productivity performance: namely advanced manufacturing, clean energy, the creative industries, defence, digital and technologies, financial services, life sciences and professional and business services.
It is telling how few people appear to have even heard about the 19th industrial strategy review unveiled since New Labour came to power in 1997, earlier in the summer. Up to now, all such industrial strategies have sunk without trace, despite all the work and effort that has gone into them.
Of course, diagnosing the UK’s problem is not the issue; whole forests have been cut down ever since Harold Wilson’s “White Heat of Technology” speech of 1963. But, as things stand, the UK economy seems to be stuck in a loop of disappointing productivity growth, endless discussion revolving around this cycle of two fiscal events a year, and whether the BofE will or will not cut rates at the next meeting. In my fantasy Budget, Rachel Reeves finally moves the dial.
***
Give big cities fiscal freedom
By Tom Forth, Leeds-based startup founder
In the financial year ending March 2024, Leeds completed nearly 4,500 homes. That was the most in four decades and 35% above its nationally-set local target. If replicated everywhere this building rate would deliver well over 300,000 homes nationally. The rate has kept up since.
Britain’s desperately needed extra homes aren’t the only things getting built in Leeds. The proposed expansion of Elland Road stadium to 53,000 was instantly backed by the city council and has received over 1,000 letters of public support and fewer than 100 in opposition. Microsoft are building a hyperscale data centre on a site that will soon also hold one of the largest grid-scale batteries in a British city. The city’s economic vision includes nearly a dozen similar large sites with similarly grand ambitions. All of them will require infrastructure investment to succeed.
Leeds and cities like it need two things from the Budget: stability and freedom.
For decades cancellations, delays, and curtailments to projects like HS2, Northern Powerhouse Rail (NPR), British Library North, and the rebuild of the Leeds General Infirmary have held back growth here. Local plans encouraged to be built around national investments ended up being held hostage by Westminster and Whitehall. A Budget that cancelled investment in a mass transit system for Leeds for a fourth time in three decades would be a disaster as would continued dithering on NPR.
Even more importantly, Leeds needs freedom. Freedom to raise a workplace parking levy without the fear of a central government veto. Freedom like London to raise a business rates supplement without a referendum of local businesses. Freedom to raise a hotel tax as cities across Europe and the USA already do.
The ambitions of cities like Leeds have always exceeded the ambitions of central government for them. Unless we can raise money locally to invest in the infrastructure needed to underpin that ambition we will remain at the mercy of others and continue to achieve less prosperity than we could. Such asks are strictly beyond the scope of a Budget, but that would be a good place to start.
