Britain’s public finances are in a difficult position, with weak growth, persistent deficits and national debt close to the size of the whole economy. In the IEA’s Alternative Budget 2026, Chief Economist Dr Valentin Boboc sets out an alternative to the Government’s Budget, showing how the public finances could be put back on a sustainable path through simpler taxes and spending restraint.
The central idea is to tax spending rather than earning and moving. By applying VAT to a much wider range of goods and services, the Alternative Budget raises enough to scrap stamp duty, inheritance tax, customs tariffs and a handful of other taxes that raise little but cause real harm. Income tax and National Insurance would be made simpler and flatter, ending the punishing hidden rates that some earners currently face. On spending, the welfare budget would be frozen in cash terms and then gently reduced, with the triple lock suspended for three years.
Even without counting any boost to growth from these reforms, the plan returns the day-to-day budget to surplus in 2027–28 and brings debt down as a share of the economy by the end of this Parliament. It also sets out a wider agenda for growth, from freeing up planning and slimming down arm’s length bodies to boosting savings, cutting energy costs and lifting unnecessary regulation.
Key proposals include:
£644 less a year in income tax and employee National Insurance for someone on median earnings, with around £1,300 less tax on a median-paid job once the employer NI reduction is included
Cutting employer National Insurance to 11.5 per cent, reducing the tax paid by employers by around £21 billion
Abolishing Stamp Duty Land Tax and inheritance tax
Raising the annual ISA allowance from £20,000 to £50,000
Introducing new Defence Bonds, available exclusively through stocks and shares ISAs, allowing British savers to help finance national defence, with funds ring-fenced for defence spending
Abolishing customs tariffs and liberalising planning to make it easier to build and invest
Broadening the VAT base and bringing welfare spending under greater control to help finance the tax reductions