Will Labour increase tax? Five plans from capital gains to income thresholds (Image: Getty)
With Sir Keir Starmer’s Labour Party set to become the next elected Government, many may wonder what new tax policies could be in store – given its goal to raise £5.2billion over the next five years.
Labour has pledged not to increase taxes on “working people”, emphasising that rises in income tax, National Insurance or VAT are out of the firing line.
Asked what he meant by “working people” in a radio interview on LBC, Sir Keir said: “People who earn their living, rely on our [public] services and don’t really have the ability to write a cheque when they get into trouble.
“So the sort of people I’m meeting pretty well every day now. It’s quite a big group because these days, there are many people obviously not so well off.”
The comment stirred speculation on what this could indirectly mean for pensioners and savers, with senior Conservative MPs indicating this could mean a tax rise for this group. Shadow Chancellor was quick to put this to bed, stating that these people still fall under the umbrella of what Labour considers “workers”.
Labour has pledged not to increase taxes on “working people” (Image: Getty)
Ms Reeves told the Today programme: “Working people are people who get their income from going out to work every day, and also pensioners that have worked all their lives and are now in retirement, drawing down on their pensions.
“Many working people do have savings, but the truth is, during the cost-of-living crisis, loads of working people have had to run down those savings and have very little left, very little to draw upon.”
Speaking to Sky News broadcaster Kay Burley, Ms Reeves said: “Some people who go out to work haven’t been able to build up savings, many other people who go to work have had to run down their savings.
“But there are many people who do have savings and have been able to save up and those are working people as well.”
So where exactly will Labour be turning to raise revenues?
What could a Labour Government mean for Capital Gains Tax and inheritance tax?
Analysts suggest the lack of increase to income taxes could still leave areas such as Capital Gains Tax (CGT), inheritance tax, and pensions tax reliefs “vulnerable” should more revenue need raising.
Nigel Green, CEO of DeVere Group warned CGT may be the “low-hanging fruit” to generate the funds to help pay for Labour’s manifesto commitments. Mr Green said: “We expect that an increase in CGT will be a prime target to help plug the gap.”
William Stevens, head of financial planning at Killik & Co told Express.co.uk: “With a Labour Government now in place, the key topics on most savers’ and investors’ minds will be the uncertainty left by the gaps in manifestos – rather than what was included. Capital Gains Tax being a clear example here, with a refusal to acknowledge it won’t change, it remains a very real possibility that we see an increase to help fund any fiscal shortfalls elsewhere.”
However, the Labour manifesto does not contain any pledges related to CGT or inheritance tax as it stands.
In which areas will Labour raise taxes?
Labour’s manifesto outlines a goal to generate £5.23 billion by 2028/29 through measures such as “closing further non-dom tax loopholes and investment in reducing tax avoidance”.
The party has also committed to maintaining the current main rate of corporation tax at 25 percent throughout the next Parliament. Additionally, they have pledged to intervene if tax reforms in other countries threaten the UK’s competitiveness.
One of the most significant revenue measures remaining is Labour’s proposal to levy business rates on private schools and apply VAT to their fees, aimed at generating an estimated £1.5 billion in revenue.
The personal allowance for income tax, as well as National Insurance thresholds, are currently frozen until April 2028.
Failing to increase thresholds in line with inflation acts as a stealth tax, dragging more people into higher tax brackets as their incomes increase. Freezing these allowances creates a substantial revenue stream for the Government.
Subsequently, the Office for Budget Responsibility’s Economic and Fiscal Outlook estimated in March that the threshold freezes would generate a staggering £41.1billion annually by 2028/29.
The party also pledges to introduce a “proper windfall tax on the huge profits the energy giants are making”. The plans include increasing and extending the Energy Profits Levy to raise just over £6billion.
Other analysts believe it’s unlikely that the party will implement any unexpected tax increases on the public, anticipating the new Government to prioritise the policies it campaigned on.
Jason Hollands, managing director of Bestinvest, the online investment platform, commented: “The scale of Labour’s parliamentary majority and weakness of the opposition will continue to fuel concerns that at some point in the next parliament, Labour might feel emboldened to raise taxes further than the plans set out in its manifesto.
“Having pledged not to increase Income Tax, VAT, National Insurance or the main rate of corporation tax, areas like Capital Gains Tax, Inheritance Tax and pensions tax reliefs could be vulnerable if the new administration decides it wants to increase tax revenues further.
“Parliamentary dominance is one thing, but as Liz Truss and Kwasi Kwarteng discovered with their fateful mini-Budget, maintaining credibility with the financial markets is vital too.
“Having carefully nurtured relationships with the City and business community, Keir Starmer and Rachel Reeves will be mindful of the need to build confidence with the financial markets.
In the near term at least, I would expect Labour to stick to the policies set out in the campaign rather than spring surprise, radical new ones out of a hat.”
