Press Story

Chancellor should raise £16 billion in Budget, mostly from reform of capital gains tax with a new pro-enterpreneur ‘super exemption’ and tackling Bank of England losses, says think tank
Action on cost of living should include new ceiling on household energy bills, measures to stabilise rents and a boost to local housing allowance
Government should focus growth strategy on AI and advanced manufacturing, plus measures to get NEETs back to work

The chancellor should consider tax-raising and other measures that would generate a further £16 billion to tackle government priorities, according to pre-Budget analysis by the IPPR think tank.

These would enable him to take key steps towards helping households with the cost of living and promoting growth in the UK economy, while sticking firmly to the government’s fiscal rules. It would also build up some buffer for next year’s fiscal pressures, IPPR’s paper says.

Economists at the think tank calculate that the Chancellor’s so-called fiscal headroom has shrunk by between £7 and £15 billion since the March forecast by the Office of Budget Responsibility (OBR) – the exact number depends significantly on the OBR’s modelling choices. This takes account of external impacts such as the effect of the Iran war on government debt costs, and other factors including early spending pledges by the new prime minister.

The combined package IPPR calls for would restore the fiscal buffer to more than £20 billion for the year ahead.

It suggests the extra revenue needed could be raised by a combination of reforming capital gains tax (raising approximately £10 billion), deferring Bank of England losses from quantitative easing (£5 billion) and a surcharge on the windfall profits of commercial banks (£1 billion). The capital gains tax changes would couple a pro-growth “super-exemption” for start-ups and new allowances for losses with equalising CGT rates with income tax.

IPPR also urges the government to consider a tailored tax of up to 2 per cent on the online sale of retail goods, with the £1.5 billion proceeds used to lower taxes for hard-pressed high-street businesses.

To raise growth, IPPR calls for the government to take steps including:

Narrow the focus of industrial strategy to key “frontier clusters” with the highest growth potential, starting with advanced manufacturing and AI. These could be at the heart of re-industrialising the UK.
Give public financial corporations more room to borrow to invest, but within a clearly specified overall envelope.
Introduce a “new youth contract” to solve the NEETs crisis, with an entry-level “work start” programme and a universal youth employment service offering a single-rate allowance for all young people.
Introduce a new “British business investment visa” (BBIV), creating a targeted route for overseas investors to direct funds into innovative and high-growth sectors.
Give England’s mayors a 5 per cent share of income tax, doubling the funding they control, to spend on local transport, housing and regeneration.

Among measures to help bring down bills and support with the cost of living, IPPR urges the government to:

Introduce a rent stabilisation mechanism, with a "double lock" to cap increases in private rents.
Guarantee a household energy bills cap of £2,000 for the entire first half of 2027, and freeze fuel duty for the same period. This would also help manage inflation expectations in a risky economic period. (See Note 3 below).
Uprate local housing allowance (LHA), frozen since 2024, for households on Universal Credit who currently face an average rent shortfall of £200 a month.

The paper stresses that the government’s official assessment of its fiscal headroom will be determined partly by how the Office of Budget Responsibility decides to “score” factors such as the fall in inward migration, leading to considerable uncertainty.

Harry Quilter-Pinner, IPPR executive director, said:

“This Budget needs to deliver by bringing household bills down and getting the economy growing, while doubling down on fiscal responsibility.

“That means raising some additional revenues in ways that support growth: reforming capital gains tax with pro-entrepreneurship exemptions, introducing an online sales tax while cutting high street business rates, stopping taxpayers footing the bill for Bank of England losses, and temporarily taxing bank windfalls.

“In all that could raise around £16 billion. The goal should be simple: give people breathing room today, while building an economy that can raise living standards tomorrow.”

Carsten Jung, interim associate director for economic policy, said:

“The government can do more to support people on the cost of living – and continue to wage a war on bills. Stabilising private rents can be done at the same time as boosting home building. Temporarily guaranteeing a £2,000 energy price cap for the first half of next year can help keep interest rates lower. And unfreezing the local housing allowance is crucial to help those most struggling to pay the rents.

“The chancellor has signalled that he wants a sound, stable and perhaps forgettable budget. But growing the economy can’t wait. Going further on industrial policy, including by boosting advanced manufacturing and AI, will be crucial for re-industrialising the UK.”

ENDS

Harry Quilter-Pinner, Carsten Jung and other IPPR policy experts are available for interview

CONTACT

Rosie Okumbe, digital and media officer: 07825 185421 [email protected]

David Wastell, director of news and communications: 07921 403651 [email protected]

NOTES TO EDITORS

The IPPR paper, Cost of living, economic growth and stability: How to make this autumn budget a success, by Harry Quilter-Pinner, Carsten Jung, William Ellis et al, will be published at 0001 on Thursday October 15. It will be available for download at www.ippr.org/articles/cost-of-living-autumn-budget
Our proposed energy price ceiling would guarantee that the average household bill would not rise above £2000 in Q1 and Q2 2027. The difference between a higher market price (delivered via the Ofgem price cap) and the £2000 ceiling would be paid for by the exchequer. Our paper on price caps this year shows that in the current high inflation environment this can have significant macro-economic effects and allow the Bank of England to keep interest rates lower, by helping anchor inflation expectations.
Full details of this and others among measures proposed are contained in previous IPPR reports:
£2,000 energy bills cap:Price caps and economic stability: How to manage the Iran war energy shock? https://www.ippr.org/articles/price-caps-and-economic-stability
Rent stabilisation: High housing costs in the private rental sector: The case for action https://www.ippr.org/articles/housing-costs-in-the-private-rental-sector
New youth contract: A better deal: Tackling the NEET crisis
https://www.ippr.org/articles/a-better-deal
British business investment visa:The British business investment visa: A new model for investment migration in the UK
https://www.ippr.org/articles/british-business-investment-visa
Income tax share for mayors: Devolution that delivers: Fiscal power for regional growth
https://www.ippr.org/articles/devolution-that-delivers
Online sales tax:Bricks vs clicks: The case for an online sales taxhttps://www.ippr.org/articles/bricks-vs-clicks-online-sales-tax
Methodology: IPPR headroom estimates are calculated using a combination of OBR ready reckoners, in-house judgement/analysis, and market data on gilt/short rates (using a 10-day working average up to 22 September 2026). Modelling is not exhaustive of all possible channels of impact at budget, but focusses in areas judged to be material. The higher estimate includes an uncertain later saving from RPI inflation falling below forecast, and assumes that higher productivity offsets half of the GDP hit from net migration. We do not assume that the OBR models a permanent hit to growth (scarring) from the conflict. We assume that the additional positive effects of inflation (from fiscal drag) broadly cancel out the negative (benefits uprating). The cost of early spending pledges is sourced from the Resolution Foundation (first week commitments) and from directly official government publications (unfunded defence commitments). The impact of lower net migration uses published OBR sensitivities. The impact on debt interest is calculated using market rates and the OBR’s debt interest ready reckoner from March 2026 EFO.