Ahead of the Labour Party’s Autumn Budget announcement, speculation is mounting around a proposed tax shift known as the “two up, two down” method. This approach involves increasing income tax rates by two percentage points while decreasing national insurance contributions by the same amount. According to the Resolution Foundation, this strategy is expected to generate £6 billion in revenue without squeezing workers’ take-home pay.
However, the policy effectively cancels out income tax for employees but could increase the tax burden for pensioners, landlords, and savers. The Times recently reported that Chancellor Reeves is considering restricting the national insurance reduction to basic rate taxpayers earning up to £50,270. This move aims to ensure that those with the greatest financial capacity shoulder a larger share of the tax increase.
Tom Selby, director of public policy at AJ Bell, explains that while the approach allows Reeves to claim he is protecting the earnings of “working people,” it places a heavier tax load on retirees. A pensioner with a taxable income of £35,000 might see an extra £450 in taxes, while someone earning £65,000 in retirement could face an increase exceeding £1,000.
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Selby also acknowledges the political difficulties of targeting pensioners, especially following the controversy over cuts to winter fuel payments. Nevertheless, he suggests this may be seen as the least harmful option available.
Sources close to the Chancellor emphasize that the policy is not intended to pit generations against each other. Rather, Reeves believes the previous government favored older generations at the expense of younger ones. One cabinet member highlighted the importance of transparency, stating that “levelling with the public” is crucial to maintaining trust.
The Observer describes the “two up, two down” tax plan as almost guaranteed to be implemented. Officials acknowledge the challenging economic climate demands mainstream tax reforms, warning that targeting smaller, more specific groups leads to disproportionate tax increases for those individuals.
A senior Labour figure framed the situation as a difficult choice between breaking narrow manifesto commitments or failing to deliver meaningful change. Ultimately, the government expects to be judged at the next election on its success in implementing these reforms.