The new UK Chancellor, John Healey, faces significant fiscal and economic challenges as he takes office, with limited room to alter the course set by his predecessor, Rachel Reeves. Roger Bootle, senior adviser to Capital Economics and senior fellow at think tank Policy Exchange, outlined several policy measures that Healey could pursue to improve economic performance and public finances.

Bootle argues that the UK’s tax system is overly complex and detrimental to growth, citing its length of more than 23,000 pages compared with fewer than 4,000 in France and just 350 in Hong Kong. He highlights particularly problematic high marginal tax rates resulting from the withdrawal of personal tax allowances and the tapering of Universal Credit. These factors, he says, create effective tax rates exceeding 100 percent for some individuals earning between £100,000 and £125,000, discouraging additional work or promotions. Bootle calls for reducing the rate of benefit withdrawal and ultimately making the personal allowance universal, while easing the Universal Credit taper, though he acknowledges these steps would increase public spending at a time when funds are scarce.

In terms of spending restraint, Bootle suggests Healey could freeze most welfare benefits aside from the politically untouchable state pension triple lock. He also proposes extending VAT to currently zero- and reduced-rate goods and services, despite recent tax breaks such as the removal of VAT on domestic electricity bills.

One of the most radical recommendations involves abolishing National Insurance contributions for both employers and employees. Bootle advocates a phased removal financed by sharp cuts in public spending relative to GDP. As an immediate measure, he advises rescinding the increase in employers’ National Insurance rates introduced under Reeves, which he describes as having harmed job creation and business viability.

Bootle also urges Healey to halt further increases in the national minimum wage, which rose by 4.1 percent in April under Reeves. He contends the UK’s minimum wage is now among the highest in Europe and is a significant barrier to employment, particularly for young people and in sectors such as hospitality. Freezing the minimum wage would alleviate financial pressure on businesses and could support job growth without impacting government spending.

The adviser disputes ideas such as defense bonds as mere rebranding of additional government borrowing, which he warns would not address the core issue of high public debt. Instead, he stresses the importance of tight public spending controls to reduce the budget deficit and the debt-to-GDP ratio, thereby lowering debt interest costs and potentially fostering economic expansion that would increase tax revenues.

Bootle emphasizes that key policy levers available to the Chancellor to enhance growth are limited, making adjustments to National Insurance and the minimum wage particularly crucial in supporting the UK economy under current fiscal constraints.