- Past experience with the Labor Party suggests a preference for stealth taxation
Rachel Reeves reckons that if she marches into 11 Downing Street on July 5, it would be a big mistake to hit voters with huge tax rises straight away.
The tax changes Labor has so far outlined would add just £3.6bn to revenue in the next financial year, leaving a huge deficit and no guidance on how it could be covered.
Despite protests that there would be no taxes on prosperity and wealth, that is what Reeves is proposing.
Plans: Despite protests that there would be no taxes on prosperity and wealth, that is what Rachel Reeves is proposing.
The proposal to impose VAT on state school fees and end their charitable status, and close loopholes for the non-domiciled rich, are taxes on wealth.
Even the promise to target tax evaders with the aim of eventually raising £5bn will hit the wealthy who have access to sophisticated advice.
The burden may eventually fall on the self-employed and smaller businesses.
We now know, thanks to the International Monetary Fund’s annual inspection of the British economy, that there is potentially a hole of up to £30bn in the public finances that needs to be filled.
The Conservatives estimate that if Labour’s spending promises are added, the party will need to raise £38.5bn more in the forecast period to 2028-29.
This is despite the Shadow Chancellor’s claim that Labor “will not put forward anything that is not fully costed and fully funded”.
His favorite method of raising revenue is to commit to closing “loopholes,” one of which was endorsed last month by IMF fiscal chief Vitor Gaspar.
Lots of money: The Conservatives estimate that if Labour’s spending promises are added, the party will need to raise another £38.5bn.
The proposal offers endless possibilities, but filling loopholes can have disastrous consequences.
Labour’s plan to abolish tax breaks for North Sea oil exploration would simply kill off new investment and drive big oil into friendlier waters, such as deepwater drilling in the Gulf of Mexico.
Here are five ways Labor could make Britain poorer by closing so-called loopholes, which is a polite name for tax rises:
VAT: This is the biggest goldmine, identified by the Institute for Fiscal Studies, which estimates that reduced rates and exemptions cost the Treasury £100 billion. Many goods and services are exempt from the 20 percent rate or pay a lower rate of 5 percent.
Pensions: The Labor Party has a history of penalizing private pension savings. Money-making factors could include reimposing the lifetime limit on pension savings. Or, equally controversial, cutting the tax relief paid to higher-rate taxpayers.
Interest carried: This is a fancy name for the large profits partners make when a business is sold. It is taxed as a capital gain, between 20 and 24 percent for higher-rate taxpayers, avoiding the 45 percent income tax. But eliminating it could lead some negotiators elsewhere.
Accommodation: The sale of primary homes is exempt from capital gains taxes, creating large tax-free windfalls for some homeowners and an intergenerational divide. But taxing primary residences would be political suicide.
Bank taxes: Windfall taxes for lenders are an easy target when their profits have skyrocketed simply due to rising interest rates.
Past experience with the Labor Party suggests a preference for stealth taxes, which are little understood, rather than changes to income tax and VAT.
And Reeves has already pledged not to reverse Jeremy Hunt’s 4 percentage point cut to employees’ National Insurance contributions. But there is no shortage of other ways to try to squeeze us all.