Labour has pledged not to raise National Insurance, Income Tax or VAT as part of its party manifesto but will launch a multi-billion pound tax raid on private schools and non-doms in a bid to tackle “unfairness” in the tax system.
This has sparked speculation in the industry around Labour’s policy on the taxes not highlighted.
In its manifesto released on Thursday, Labour said it wants to ensure taxes on working people are kept as “low as possible”.
Instead, it plans to raise £5.2 billion from closing non-dom tax loopholes and reducing tax avoidance, with the money used to pay for more NHS appointments and teachers.
Labour also confirmed its commitment to applying VAT and business rates to private schools, in a move that is expected to net the government £1.5 billion. With private schools facing pressure from rising wages and pension costs and unlikely to be able to absorb the 20% rise, parents’ fees are set to increase substantially.
Jason Hollands, managing director at Evelyn Partners, said: “Labour have billed their manifesto as one focused on ‘wealth creation’ but an alternative take is that the party have pursued a ‘safety first’ approach by avoiding any startling or unflagged policy initiatives, particularly around taxation. It’s certainly quite minimalist compared to the Conservative’s more maximalist effort on fiscally sensitive matters at least.”
However, the decision not to raise the three big taxes – Income tax, NI and VAT- could prove a ‘double-edged’ sword, according to Hollands, inevitably creating suspicion about which other areas could be vulnerable such as Capital Gains Tax and Inheritance Tax.
Hollands said: “The manifesto was silent on these areas and while it is perhaps unrealistic to expect a party so close to Government to rule out tax rises across the board, the scepticism of independent forecasters on both leading parties’ public finance projections inevitably feeds suspicion that more tax revenue will have to be raised from somewhere.”
Rachael Griffin, tax and financial planning expert at Quilter, agrees that the lack of confirmation in the manifesto that Labour will not raise CGT, despite Sir Keir Starmer saying he had “no plans” to do so, will “spark significant concern” among entrepreneurs and investors in the UK.
Griffin said: “Those who face CGT in the UK, primarily higher rate taxpayers and entrepreneurs who realise gains from the sale of residential property, investments, and other chargeable assets, have already seen their annual exempt allowance slashed by the current Conservative government to just £3,000 a year. If Labour is to win the general election and then increase rates, it would serve as a double whammy with higher rates and lower exempt allowances considerably increasing the capital gains tax take.”
The decision not to end tax freezes also raised concern among experts. Laura Suter, director of personal finance at AJ Bell, said that continuing the freeze on income tax bands introduced by the Conservative government was a matter of “bringing tax hikes in through the back door.”
Suter said: “The freeze on income tax thresholds means that millions more people will be dragged into higher rates of tax. The OBR estimates that by 2028-29 the deep freeze on tax thresholds will see almost 4 million extra taxpayers. On top of that, many households will pay thousands more in income tax than they would have done had thresholds been indexed in line with inflation.
“The difficulty for the next government is that the freeze on income tax bands is baked into the budget for future years and unwinding this comes with a large price tag. But if they don’t end the freeze they can’t also claim that taxes won’t rise under a Labour government.”
