If you believed that graduates from Eton and Harrow, or professionals from management consultancy McKinsey and investment bank Goldman Sachs truly controlled Britain, reconsider. As the dust settles on Keir Starmer's ministerial reorganization, it is evident who holds the real power ahead of November's Budget.
The Prime Minister has significantly reduced Rachel Reeves' influence and delegated crucial decision-making authority to graduates from the Resolution Foundation, a left-leaning policy institute that promotes levying taxes on 'unearned' wealth instead of 'earned' income to address a potential £50 billion shortfall in public funds. This implies that individuals who own property, have a pension, or anticipate receiving an inheritance are now targeted.
The Finance Minister has decided not to raise taxes for 'working individuals' likeincome tax, value-added tax and employee national insurance, but this creates an opportunity for increased taxes on inheritance, capital gains, and pensions.
Some of the think-tank's proposals were implemented in her unsuccessful first Budget last year. These included the elimination ofinheritance taxRelief for family farms and incorporating unused pensions into a deceased person's estate, thereby subjecting them to Inheritance Tax (IHT). These actions caused outrage among farmers and savers. However, these were only the beginning.
The foundation has prepared plans for more extensive tax inspections – and now possesses the influential individuals to carry them out.
The key players
Sir Clive Cowdery
The organization was established in 2005 by business leader Sir Clive Cowdery, with the aim of enhancing the quality of life for families with low and middle incomes.
It is most recognized for determining the actual living wage, a self-imposed hourly compensation that exceeds the legal minimum. Cowdery struck it rich last year after selling his Resolution Life insurance company to a Japanese competitor for £8.3 billion. The amount of his profit remained undisclosed.
Torsten Bell
The foundation's most prominent graduate, Torsten Bell, who previously worked as a civil servant in the Treasury, led the think-tank from 2015 to 2024 before being appointed to the secure Labour constituency of Swansea West in the recent general election.
A new promotion enabled him to play a key part in drafting the Budget and managing economic policy, indicating his influence will be evident in the November update.
Bell has previously advocated for the removal of the state pension's 'triple lock' and stated that the tax system is a mess, suggesting it should be reformed to focus more on taxing wealth.
Dan Tomlinson
A former Treasury employee, Dan Tomlinson, was associated with the foundation from 2015 to 2022, eventually rising to the position of senior economist.
He secured the Chipping Barnet seat for Labour last year and was appointed as Treasury exchequer secretary during a cabinet reorganization. In a 2022 report commissioned by the foundation, he stated that not addressing wealth through new taxes while incomes were under pressure was 'unacceptable'.
Minouche Shafik
A former deputy governor of the Bank of England, Baroness Minouche Shafik, is now serving as Starmer's economic advisor. She lacks business experience, having mainly worked in academia, the civil service, and the International Monetary Fund, where she managed its reaction to the 2009 eurozone debt crisis.
Alongside Cowdery, she co-led a recent foundation report stating that wealth should bear 'a larger share' of the tax responsibility.
Vidhya Alakeson
The deputy chief of staff to Starmer, Vidhya Alakeson, served as Bell's second-in-command at the foundation from 2011 to 2014.
Similar to Bell and Tomlinson, she also served in the Treasury as a senior policy advisor. After Starmer's recent reorganization, she has assumed an additional position responsible for policy and implementation within Downing Street.
Their Budget Wishlist
The policy institute will outline its suggestions later this month, but there are already hints regarding its potential plans.
Inheritance tax
The foundation has previously advocated for the IHT system to be completely overhauled and substituted with a charge imposed on beneficiaries, rather than on the estate.
At present, the initial £325,000 of an estate's value is exempt from tax, with IHT applied at a rate of 40% on the remaining amount. This limit may rise to £500,000 if you transfer your house to your children or grandchildren.
Bell oversaw the think-tank's earlier analysis on how a wealth tax based on recipients could nearly double the revenue generated by IHT. Suggestions involved a tax-free threshold of £125,000 for a lifetime, along with a 20 per cent rate for amounts up to £500,000 and a 30 per cent tax on sums exceeding £500,000.
Although the foundation does not anticipate the removal of IHT in the Budget, it has advocated for the elimination of the £325,000 tax-free threshold.
Pensions
With retirement savings being included in IHT from 2027, and considering Bell's official responsibilities, a takeover of pensions appears unavoidable.
This may include additional limitations on the amount of tax-free cash that can be withdrawn from pension funds, which is currently limited to £268,275.
Another possible focus could be tax benefits for retirement savings. Individuals receive tax relief based on their highest marginal tax rate, but the foundation aims to shift this benefit 'towards those with lower to middle incomes'.
NI for landlords
The Treasury is reportedly looking into imposing a tax on property owners. Income from rentals is currently not subject to national insurance if being a landlord is not your primary occupation. However, the policy institute has proposed that all landlords should be required to pay NI.
A representative from the Resolution Foundation stated: "We will attempt to impact the upcoming Budget in the same manner as we have over the last two decades." However, this time, it will be like pushing against a door that is already open.