Why Labour have every reason to loosen the purse strings

This blog post is based on an article published in the Journal of Social Policy by Elliott Johnson et al.

The blog post is written by Elliott Johnson, Howard Reed, Anna Thew, and Matthew Johnson.

Tax Reform and Economic Renewal: The Case for Basic Income

Rachel Reeves describes the UK economy as being in its worst state since WWII, yet commits to intensifying the very policies—austerity and fiscal restraint—that created this crisis. Our Journal of Social Policy article uses Act Now‘s tax reform package to refute Labour strategists’ belief that ‘tax and spend’ is electorally unfeasible, demonstrating the Government is at odds with public opinion.

The UK’s Economic Decline

After 14 years of intermittent austerity atop three decades of neoliberal reform, the UK has become ‘a poor country with a few rich residents’. Productivity growth (output per worker) declined from 2.9% annually in the 1960s to 1.9% in the 1980s to just 0.7% in the 2010s. GDP per capita growth fell from 2.8% annually in the 1950s to 0.5% in the 2020s. The UK’s high inequality means average household incomes are 10–12% lower than in Germany and France, resulting from long-term underinvestment in public and private sectors, poor infrastructure, a low-skilled workforce, lack of innovation, and these issues are exacerbated by inequality and climate change.

Basic Income as Direct Intervention

Direct interventions are needed to tackle poverty, inequality and insecurity. Basic Income achieves this better than any New Labour reforms (1997–2010). A largely fiscally neutral scheme dramatically reduces poverty:

Measure	Cohort	2022 Baseline	Basic Income
Poverty (After Housing Costs)	Children	29.2%	13.5%
	Pensioners	16.6%	10.1%
	Working-age adults	15.0%	11.2%
Poverty (Before Housing Costs)	Children	20.1%	6.6%
	Pensioners	21.7%	14.2%
	Working-age adults	20.2%	15.5%
Inequality (Gini, household incomes)	BHC	0.353	0.3
	AHC	0.394	0.331

Revolutionary Economic Multiplier Analysis

Investing in citizens is critical for economic renewal. Our groundbreaking analysis of 1996-2019 data from 25 advanced economies reveals that current Office for Budget Responsibility spending multipliers are highly conservative.

Capital Spending Multipliers:

• Years 2–4: ~1.5
• Year 5: 1.82
• Year 9: 2.99 (peak)
• Tax receipts (40% of GDP): £1.20 returned in year 9 per £1 spent

Current Spending Multipliers (which would include Basic Income):

• Year 1: 1.32
• Year 2: 1.35 (peak)
• Returns 54p to Exchequer per £1 spent in year 2 alone
• Declines to zero by year 6

These findings make intuitive sense. Capital spending creates long-term resources available for years. Current spending provides Keynesian stimulus, guiding economies through difficulties, while elevating productivity—which must be maintained through continued investment.

Critically, these multipliers work bidirectionally: hundreds of billions in cuts since the Global Financial Crisis have caused devastating, compounding losses to the economy and tax base.

Enhanced Revenue Projections

Using these multipliers, we estimate an additional £56.1 billion in tax receipts from Act Now policies beyond previous projections. Combined with tax system reforms rewarding productive work, multiplier effects more than cover comprehensive national renewal, rebuilding public services and reducing poverty and inequality to historic lows—with £82 billion surplus for either more ambitious programmes or debt reduction.

Public Support for Tax Reform

Government rejection of these approaches is demonstrably unpopular. Polling shows strong support for protecting individuals against cost-of-living pressures, protecting public services over tax cuts, and taxing the wealthiest.

Act Now’s tax reform programme includes corporation tax increases, wealth taxes, carbon taxes, luxury taxes, and removal of ineffective subsidies and reliefs. We found consistently high support:

• Mean support: 64.40/100
• Strong pre-treatment support (≥70): 46.64%
• Strong opposition (≤30): 12.94%
• Maximum support (100): 11.89%
• Zero support: 2.68%

Contrary to assumptions about identity politics, ethnicity, region and gender were not significant predictors. However, younger age, lower socioeconomic status and worse health significantly predicted higher support.

The Power of Narrative

Support increased significantly when residents encountered narratives adversarially co-produced with initial opponents. The most impactful narrative emphasised relative gains—tax’s role redistributing wealth from the wealthiest to ordinary workers:

“The current tax system disproportionately benefits the wealthiest. They avoid taxes through dividends, pay lower Council Tax proportions, and pay less tax on passive wealth than those who work. The reforms ensure the richest pay more to close the gap for workers and cannot hide money overseas without taxation. There’s only so much money anyone needs for comfortable living, yet a small number have endless luxury while hard-working people struggle. Imagine a billionaire finally paying their fair share. It would make a real difference: taxing the wealthy more closes the gap, bringing workers toward good quality of life.”

This narrative significantly increased support among initial supporters and, crucially, among firm opponents, reducing hostility.

New Economic Rules

Labour has every electoral reason to deliver on founding principles achieving these outcomes. Given tax reform’s importance to financial security, we propose new economic rules:

1. Poverty and inequality must fall by year three until returned to historic lows through infrastructure investment, current spending and fair taxation
2. Public Sector Net Worth must increase by year five
3. Public Sector Net Debt must reduce sustainably by year ten through:
   • Large-scale public investment in secure, low-cost renewable energy
   • Re-establishing local manufacturing for national security essentials (steel, medicines, vaccines, PPE)

These offer clearer pathways to the increased financial security Britons need and want, demonstrating that evidence-based, progressive tax reform is both economically sound and electorally viable.

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Reference

Johnson, Elliott Aidan et al. 2026. “UK Resident Preferences on Tax Reform: Survey-Based Evidence Suggests Support for Progressive Change in the Run up to the 2024 General Election.” Journal of Social Policy: 1–21. doi: 10.1017/S0047279425101268.

About the Authors

Elliott Johnson is Vice-Chancellor’s Fellow in Public Policy, Department of Social Work, Education and Community Wellbeing, Northumbria University, Newcastle, UK.

Howard Reed is Senior Research Fellow in Public Policy, Department of Social Work, Education and Community Wellbeing, Northumbria University, Newcastle, UK.

Anna Thew is Senior Research Assistant in Public Policy, Department of Social Work, Education and Community Wellbeing, Northumbria University, Newcastle, UK.

Matthew Johnson is Professor of Public Policy, Department of Social Work, Education and Community Wellbeing, Northumbria University, Newcastle, UK.