‘This election is about change... It is time to change Britain.’ So began Labour’s manifesto during their successful election campaign.

The Autumn Budget is the time to start introducing bold reforms on the scale needed to drive forward that change in the form of Labour’s critical growth and opportunity missions. The government will need to think beyond the initial fiscal hole and start to identify where the financial resource for longer-lasting reforms can come from.

As CPP has argued previously, a greater focus on taxing wealth, not just incomes, will be part of the solution. But similarly, it is crucial to take a pragmatic approach to fiscal rules so that this parliament finally sees a sustained increase in public investment for UK growth.

Driving public investment

The UK sits way below the OECD average on public investment as a share of GDP, and public investment is forecast to fall further over the next five years. The government must reverse this trend. At the end of August, the Office for Budget Responsibility modelled that a sustained 1 per cent of GDP increase in public investment could plausibly increase the level of potential output by just under half a percent after five years and around 2.5 per cent in the long run (50 years). In other words, the sooner we get going the better.

Labour’s fiscal rules explicitly allow for borrowing for investment providing some wriggle room which the government should take advantage of now. Chancellor Reeves has also suggested redefining the government’s measure of public sector debt to exclude Bank of England losses, potentially freeing up £17bn for the Treasury in the short term. This seems sensible to provide additional immediate headroom, even if it is largely meaningless for medium term sustainability.

The Chancellor could also put in place measures to improve the fiscal framework over the longer term which would enable greater emphasis on investment. For instance, given the long term nature of payoffs from investment, CPP has previously argued it would make sense to extend the forecast horizon for the economy and public finances to 10 years rather than just 5. And there should be more of a focus on public sector net worth – to account for the assets government invests in - rather than the current fixation on in year spending and revenue. Moving to such an approach relies on better data on the value of public assets, but with a concerted push it feels achievable and useful.

Improving the tax system

Beyond fiscal rules, the start of the new parliament is a chance to reset the burden of taxation more fairly between income and wealth. As work CPP did with a citizens’ jury last year suggested, there could be a politically viable path forward based on taxing ‘undeserved’ windfalls and the best-off.

In this context, and as CPP has argued for, it looks increasingly likely that Labour will equalise the rate of capital gains tax with income tax to generate around £10bn in additional revenue per annum. They may also close inheritance tax loopholes which unfairly benefit the wealthiest – although this is unlikely to bring in much additional revenue.

More substantive taxes on wealth are unlikely but the Government shouldn’t rule out one off net wealth taxes, which could feasibly raise nearly £60bn over a two-year period. This was a popular option when raised with the citizens' jury and LSE’s work on this has provided significant detail on design.

Perhaps more likely however, is the government reviewing the UK’s 1,100 tax reliefs with an eye to abolishing those that are inefficient and fail to align with their Labour’s five missions. We have estimated for instance, that over the course of the next parliament, around £8bn a year could be saved by removing such reliefs, such as capital allowances for oil and gas firms.

Beyond this, Labour may need to pull more traditional levers to bring in substantive revenue. In this context, it is more progressive to focus on income tax rather than VAT or national insurance. The latter is often a favoured measure with governments seeking to raise revenue, but since it only applies to those in work, it would directly contradict Labour’s promise not to overly burden working people.

Overall while the temptation maybe to fixate on the initial black hole at this Autumn’s budget, Labour can make credible changes to the fiscal rules and tax system to provide more headroom for longer term spending and public investment. That way the government can start to chart a clear path genuine change.