Rathbones urges new Chancellor to prioritise growth over higher taxes to repair the public finances

• Only stronger economic growth will deliver sustainable prosperity, says John Wyn-Evans, Head of Market Analysis at Rathbones
• Rathbones outlines five recommendations, including protecting pension incentives, encourage investment through simpler business taxes and resisting a wealth tax

 
Rathbones, one of the UK’s leading wealth and asset management groups, has called on new Chancellor John Healey to improve the UK’s public finances through economic growth rather than higher taxes, arguing it offers the most sustainable route to national prosperity.

Outlining five recommendations to boost growth, John Wyn-Evans, Head of Market Analysis at Rathbones, said the new Government under Prime Minister Andy Burnham must overcome the structural barriers to growth that have been in place since Labour came to power in 2024.

He said: “Labour came to power promising to kickstart economic growth. Two years on, many of the structural barriers to achieving that ambition remain. By focusing on investment, productivity and competitiveness, Healey has an opportunity to break that cycle and create the stronger growth needed to improve living standards, strengthen public finances and restore confidence in the UK’s economic future.”

Commenting on the market reaction to Healey, he said: “Financial markets have given John Healey a cautious welcome, with investors taking reassurance from better-than-expected public finance figures and a relatively calm reaction in gilt and currency markets. The government’s finances were in slightly better shape than forecast in June, helping to offset the cost of the new government’s first major policy move – scrapping VAT on household energy bills.

“However, the honeymoon period may be short-lived. Healey inherits a difficult fiscal backdrop, with government debt near historic highs, elevated borrowing costs and growing pressure to increase spending on defence, public services and an ageing population. His experience at the Treasury will be valuable, but the challenge now is finding a way to balance these competing demands without undermining confidence in the UK’s finances.

“Ultimately, the Chancellor’s biggest challenge is not how to raise more money, but how to grow the economy. Years of weak growth have left the public finances under strain, forcing governments to rely on higher taxes and tighter spending to balance the books. The most sustainable route to stronger public finances is a larger, more productive economy that generates higher tax revenues naturally, rather than asking households and businesses to shoulder ever more of the burden.

“If John Healey wants to put the public finances on a more sustainable footing, growth must be the priority. That means backing policies that encourage long-term investment, entrepreneurship and productivity rather than reaching for measures that risk deterring capital and talent.”

Five recommendations to boost growth

Rathbones has outlined five priorities that it believes would help strengthen the economy, encourage investment and put the public finances on a more sustainable footing.

John Wyn-Evans says: “First, preserve incentives for pension saving and continue efforts to channel more pension capital into productive UK investments. Pension reforms should support investment in growing businesses, while avoiding changes that discourage long-term saving. Our analysis suggests that reducing higher and additional-rate pension tax relief to 25% could remove at least £50 billion of savings that would otherwise help fund investment across the economy.

“Second, reform business taxes and capital allowances to encourage firms to invest, innovate and expand. Third, direct public investment towards the regions, infrastructure projects and industries where it can deliver the greatest productivity gains and support long-term growth.

“Fourth, resist calls for a wealth tax, which risks driving capital away from the UK when investment is exactly what the economy needs more of. Our analysis suggests a 2% wealth tax could result in at least £100 billion leaving the UK or being diverted into less productive assets.

“Finally, reform property taxes such as stamp duty, which act as a brake on labour mobility, housing market activity and economic efficiency. A more efficient property tax system would support a more dynamic economy and help people move to where opportunities exist.”

Rathbones’ Wealth CEO Camilla Stowell urged Labour to prioritise economic growth in Rathbones’ Building Prosperity report at last autumn’s budget.