Rachel Reeves has been warned that she must slash taxes again before the next election if she breaks her key manifesto pledge and hikes them in the Budget.
Sir Tony Blairâs think tank also said that any tax hikes such as raising VAT or income tax must be done in tandem with pro-business policies to break Britainâs âtax-and-spend doom loopâ.
The warning comes after the chancellor put the country on notice that manifesto-busting sweeping tax rises are coming later this month, saying during an unprecedented pre-Budget address that âwe will all have to contributeâ.
The Tony Blair Institute has now called for any major tax rises to be temporary, warning Labour should move to “targeted tax cutsâ before the next election âonce growth strengthens and public service reforms deliver resultsâ.
The group also called for the chancellor to bring businesses who had been âbruisedâ by last yearâs Budget âback onsideâ with measures that move beyond âthe caution of the governmentâs first year in officeâ.
The Tony Blair Institute for Global Change (TBI) said any tax-raising measures must be paired with pro-business reforms that hard-wire growth into every major policy decision, making the UK a better place to invest, work and build.
It warns: âIf the chancellor opts for a larger revenue-raising step â particularly a manifesto-breaching increase in income tax or value-added tax (VAT) â she should make clear that it is temporary and conditional: a short-term measure to stabilise the public finances, not a permanent shift in direction.â
It added that, as growth returns and public-sector reforms take effect, the priority should be to reverse these rises â âturning short-term discipline into the foundation for recovery and pre-election tax cutsâ.
In its paper, the TBI said that planned changes to migration policy and employment rights risk damaging the UKâs flexible jobs market.
It urged ministers to retain the five-year route to permanent settlement for the skilled worker visa, instead of requiring migrants to spend a decade in the UK before being able to apply.
It also recommends expanding access and reducing the cost of the global talent visa, introducing a new âtech excellenceâ visa for engineers, founders and researchers, and creating a permanent key worker visa for shortage professions, such as construction and care.
Tom Smith, director of economic policy at the Tony Blair Institute, added: âThe chancellor acknowledges she has tough choices to make. She cannot satisfy the markets, the party, business and voters all at once. The only way to do so over time is to put Britain back on the path to growth â and that means a new bargain between government and business.
âA credible Budget canât just raise taxes â it must raise Britainâs sights. The government needs to show fiscal discipline, but also the confidence to back business.â
It comes as the CBI warned in a new report against âdeath by a thousand taxesâ and said that âevery decisionâ the chancellor takes had to help stimulate economic growth.
In its Budget submission to the Treasury, the organisation, which represents thousands of businesses, said âhard choices must be made â without leaving the door ajar to further unwelcome tax changes in Springâ.
It added: âDeath by a thousand taxes is not a credible way to deliver a thriving, prosperous economy.â
It said nothing should be considered âoff-the-tableâ, âincluding unpopular moves in areas like personal tax, public spending, welfare provision and pension increases.
They also called for the government to fast-track critical infrastructure and to use technology to modernise the economy.
Rain Newton-Smith, the chief executive of the CBI, said: âYearly tinkering to close an ever-increasing fiscal gap simply isnât a viable approach to a challenge this big.
âWe need to take tough decisions now or risk a downward spiral that sees us robbing Peter to pay Paul just to fund normal government expenditure and puts our growth prospects in peril.
âShort-term thinking leads to long-term decline, letâs not make that a political choice we live to regret. â
She added that sticking rigidly to manifesto commitments âmay be politically laudable, but itâs only economically viable if material conditions remain unchanged. The fact is, they are not. Tax rises and spending cuts are unpopular, but the reality is that the chancellor faces little choice.â
Reeves warned on Tuesday that âeach of us must do our bitâ and warned there were âhard choicesâ ahead. She signalled she is ready to break Labourâs flagship manifesto commitment not to raise income tax, personal national insurance or VAT.
At the weekend, The Independent revealed that Ms Reeves faces a cabinet backlash if she breaks the pledge to voters.
The Treasury has been contacted for comment.
