The Alternative Alternative Budget

Originally published on Henry George Foundation on October 29, 2026. Republished on Progress.org with permission.

These are the first few lines of the public letter sent last week by Lord Hannan of Kingsclere, Director General of the Institute of Economic Affairs, and Dr. Valentin Boboc, the IEA’s Chief Economist, to UK chancellor John Healey. The letter was an invitation for the chancellor, ahead of his first budget, to consider the IEA’s proposed Alternative Budget.

I suspect that like me, many of the people reading this article will sympathise with the message delivered in these first few lines: the chancellor did indeed face difficult choices; public services are indeed under pressure, but further tax rises are not inevitable. This, however, is pretty much the extent of my sympathy with what the IEA has to offer (with one or two exceptions).

I’m not going to be too harsh on Dr. Boboc, the author of the set of proposals offered to Healey. Alternative budgets are extremely difficult, time-consuming affairs, and their authors obviously won’t be able to please everybody at the same time. And there are certain aspects of the IEA budget that do make some sense, such as the attempt to simplify and flatten the NICs and income tax schedules.

Nevertheless, the document fails catastrophically to do what its author set out to do: to demonstrate what a fairer and more efficient tax system would look like, and to identify a set of reforms that would improve Britain’s economic prospects by doing less to penalise work, employment, and productive investment.

Political Meltdown….

Not too much need be said about the centrepiece of Boboc’s budget: his proposal to extend VAT to include goods and services that are currently exempt, zero rated, or taxed at reduced rates, such as food, water, and passenger transport. Boboc justifies this proposal on the supposed economic grounds that ‘similar consumption should face similar tax’, since exemptions and preferential rates change relative prices and encourage disputes over classification. The £75 billion that broadening the VAT base would raise in 2027/28 could be used, he suggests, ‘to finance a reduction in other taxes which have a markedly negative impact on economic activity’, reflecting ‘a shift of the tax burden away from income and transactions and towards consumption’.

Whether broadening the VAT base and reducing income tax and NICs would make any economic sense is not clear, and is not a question I will address here (I suspect it would not, though I am aware that this view is at odds with mainstream economic theory). What is clear is that raising £75 billion by increasing the cost of living - at a time when the affordability crisis is biting harder than ever - would be politically unwise, to say the least.

One of Healey’s main concerns at this time would presumably be to avoid provoking people into taking to the streets, so that the riots that have erupted in France and other cities across Europe do not break out here in the UK. But this is surely what would happen if he had extended VAT to food, water, and transport, while reducing welfare spending over the next three years (another of Boboc’s proposals).

And Economic Degeneration

What is also clear is that Boboc’s other key tax reform proposal - to abolish both Stamp Duty Land Tax and Inheritance Tax - would make no economic sense at all. Abolishing SDLT without replacing it with a more suitable form of property tax would benefit the existing owners of the most valuable properties at the expense of first-time buyers and low-income households that spend a larger proportion of their incomes on food, water, and passenger transport. Simple abolition of SDLT would lead to massive house price inflation as most or all of the tax savings for buyers are capitalised into higher selling prices.

This would not only widen the already yawning wealth gap between property owners and the propertyless, between the richer and poorer regions of the UK, and between older and younger generations – it would also strengthen the existing tax bias in favour of residential property over business investment, further weakening innovation and productivity growth.

As I have mentioned in a number of previous Land Question Substack articles, land is already radically undertaxed in the UK, and the simple abolition of SDLT would leave the tax system even more imbalanced. This would be a recipe for further stagnation and decline, not the brighter economic prospects that the IEA’s Alternative Budget promises. The proposed abolition of Inheritance Tax would exacerbate the problem by handing a massive tax cut (worth more than £1 million on average) to the owners of the top 1% of estates (worth £2.1 million or more).

For all these reasons (and many more), the chancellor was right to ignore the IEA’s no doubt well intentioned, but nevertheless entirely unhelpful set of recommendations. But what should he have done, instead of announcing the 98 ‘marginal tweaks’ that his budget contained?

The Alternative to the Alternative

Boboc was right to call for the abolition of SDLT – it is one of the most damaging of all existing UK taxes, reducing transactions, heavily distorting the housing market, and preventing people from moving house. But it must be replaced by a more suitable form of property tax, rather than by a higher burden of VAT.

This does not mean, however, that the missing SDLT revenues must be accounted for with reference to revenues generated by the form of property tax that replaces it. The politics of property tax reform are notoriously difficult, and there are good reasons why the abolition of SDLT should be treated separately from the reform of the Council Tax.

What Healey should have done: Phase out the residential property component of SDLT by the end of this parliament, replacing the lost revenue (around £11 billion per year) with the revenues raised from CGT reform1 and the increase in the bank surcharge (which should be permanent, not temporary).

Boboc was also right to call for the removal of the 60% marginal income tax rate that higher earners face when their earnings exceed £100,000. This strongly disincentivises work when the tax system needs to be doing the opposite. But broadening the VAT base is not the way to replace the lost revenues.

What Healey should have done: Replace the Council Tax with a local property tax that funds local services and a national residential land value tax set at a rate of 1%, with the additional revenues from this tax replacing the £7 billion or so that removal of the income tax personal allowance taper would cost. This would directly benefit many of those who would face a significant tax increase from the introduction of LVT. It would also encourage highly skilled and highly productive professionals to work additional hours and delay retirement, at a time when the country is in desperate need of their skills and expertise.

Another thing Boboc got right was to call for reductions in NICs. This would increase the number of people in employment and the number of hours worked, and would benefit working people on average incomes. But broadening the VAT base is not the way to replace the lost revenues.

What Healey should have done: Use the revenue saved by removing the pension triple lock and scrapping the ‘Your First Home’ policy to reduce NICs.

There are, of course, many other things Healey could and should have done, only one of which I am going to mention here:

What Healey should also have done: Replace Business Rates and commercial SDLT with a commercial land value tax. This would reduce the burden of taxation borne by businesses outside London and the South East, while at the same time raising productivity growth by boosting business investment.

This short list of reforms would strengthen employment incentives, boost investment and enhance productivity, increase the supply of housing, and reduce the cost of living. The flotilla of small measures that Healey instead announced will deliver nothing more than marginal gains (or losses), and will fail to help the UK rouse itself from the social and economic malaise into which it has descended since the global financial crisis.