The next UK general election can be no later than 28 January 2025 and may well be sooner. With many people regarding a Labour government as a near certainty, we decided to have a look at what Labour have to say on tax.
The big picture on tax
Sir Keir Starmer is trying hard to position Labour as a moderate centralist party which he believes will appeal to voters. However he will also want to avoid inflaming those on the left of the party who would prefer a more radical agenda. This has led to an approach of broad tax policy statements lacking in detail: much the same as in other areas.
Our sources
Although we don’t yet have an election manifesto to refer to, there are a number of Labour Party statements in the public domain that enable us to examine Labour’s approach to tax in an objective way.
The most recent and probably most significant pronouncements on Labour’s tax policy have been in interviews with senior Labour politicians including Sir Keir Starmer. We have referred to these where applicable.
As well as statements by Labour politicians we have also looked at documents published by the Party or other bodies on Labour’s tax policy. These are:
1. The Chartered Institute of Taxation’s review of tax and fiscal measures discussed at the Labour Party Conference 2022. (4 October 2022)
2. An article published on 11 May 2023 by LabourList which describes itself as an independent ‘forum for authoritative news … about the Labour Party’.
The article says that “Labour has drafted its most comprehensive policy programme yet for a Keir Starmer government, drawing up a provisional but wide-ranging blueprint likely to shape the next general election manifesto”. The article’s source is an ‘86-page policy handbook’ that built on previous policy documents.
The wide-ranging article includes a section in which the following five tax policy objectives are listed but with no further detail.
- End tax breaks for private equity bosses
- Remove the non-domiciled tax loophole, putting in place a system for genuinely temporary residents
- Remove the tax loopholes that private schools enjoy
- Crack down on tax evasion and tax avoidance
- Scrap and replace the current system of business rates in England and Wales with a fully-costed and funded system of business property taxation
3. Labour’s Tax Transparency and Enforcement Programme (LTTEP), published by the Labour Party in 2017. This document was published while Jeremy Corbyn was Labour leader; as far as we are aware, it no longer represents Labour Party policy. However, some of the policy headings in the LabourList article are the same or similar to policies set out in the LTTEP, making the LTTEP a potential source of further detail on the policy intent.
Tax rates: capital gains tax, income tax and corporation tax
So the first question is: what are Labour’s plans for tax rates?
After Liz Truss’s controversial Mini Budget in September 2022, in which she cut the top rate of income tax from 45% to 40%, Labour stated that they would keep the tax cuts for lower earners but reverse the top rate cut. As the top rate cut has now been reversed, this is academic. Labour also supported the abolition of the 1.25% income surcharge.
In 2020 Sir Keir Starmer pledged to increase the top rate of income tax, then 45%. However, in an interview with the Telegraph in August 2023, Rachel Reeves confirmed that the Party had ditched this. She insisted that the previous plan to increase the 45% top rate was off the table. She added:
“The tax burden is its highest in 60, maybe even 70, years … I don’t see a route towards having more money for public services that is through taxing our way there.”
In an interview with The Mirror in September 2023, Sir Keir pledged not to hike levies – including income tax. He added that: “We will do nothing to increase the burden on working people, whether it comes to tax or anything else. They have paid a heavy price for the incompetence of the government after the last 13 years”.
In an interview with Sky News, also in September 2023, Sir Keir was reported as ‘refusing to guarantee the tax burden – currently the largest since the Second World War – would not increase under Labour.’ He told Trevor Phillips: I want the tax burden to come down, particularly on working people … but I also am absolutely focused on growing the economy.”
This seems slightly contradictory! The reference to working people raises the question of whether Sir Keir sees things differently for non-working people – possibly those living off rental or investment income? Is a return of investment income surcharge a possibility?
And if “working people” doesn’t mean all people who are working, does it refer to to people other than very high earners?
In March 2022, Ms Reeves told the BBC that Labour had no plans to increase capital gains tax (CGT). She added:
“There are people who have built up their own businesses who maybe at retirement want to sell that business. They may not have had huge income through their life if they’ve reinvested in their business, but this is their retirement pot of money. And we also have said we want Britain to be the best place to start and grow a business.”
However, around the same time, Labour’s deputy leader Angela Rayner criticised the rate of CGT. She said it revealed “a tax system designed by successive Tory governments in which the prime minister pays a far lower tax rate than working people who face the highest tax burden in 70 years”.
In the last Labour manifesto there was a proposal to align capital gains rates with income tax rates but also to bring back indexation allowance to moderate the effects of inflation. Curiously this could actually have benefitted property investors: although their CGT rate would have been higher, much of their gains would have been wiped out by the indexation allowance.
On corporation tax, the CIOT report of the Labour Party Conference 2022 stated that Labour favours investment allowances over a low tax rate. Rachel Reeves, in a keynote speech, said that businesses were telling her that the lowering of corporation tax rates doesn’t solve their problems: what they need is properly targeted investment allowances. There was also a feeling that corporation tax cuts benefitted online giants (e.g. Amazon) and large multinationals rather than the average Brit.
A dislike of low corporation tax rates was also seen in the LTTEP. The LTTEP indicated that Labour saw incorporation of businesses as avoidance by self-employed individuals, on the basis that a sole trader pays income tax at 45% while a small company pays corporation tax at rates between 19 and 25%. This did ignore the fact that if the owner of the company wants to draw income from the company, the combined corporation tax and income tax on the dividend is often higher than the income tax on personal profits. The LTTEP suggested that increases in corporation tax rate would raise significant revenues; however, there is no specific mention of corporation tax rates in the LabourList article.
It seems that for Labour a low corporation tax rate might be bad – because it is poorly targeted and unfairly enriches both small and large businesses! The information available is silent on what rate Labour propose for corporation tax. The Labour manifesto at the last election proposed a rate of 26% which it said was still low by global standards. But as the main corporation tax rate is now 25%, an increase to 26% wouldn’t be particularly significant and this may be why there is silence on the corporation tax rate.
‘End tax breaks for private equity bosses’
The LabourList article refers to ‘end[ing] tax breaks for private equity bosses’. There is no further detail.
However, the LTTEP did refer to ‘closing the “Mayfair Tax” loophole’. By this it meant the current practice of treating carried interest earned by private equity managers as capital gain, typically at rates between 10% and 28% rather than as income at rates up to 45%. Carried interest is the gain made on selling shares held by the managers in the private equity company. It is this practice that led to comments about fund managers paying less tax than their cleaners. There is already anti-avoidance legislation targeted at abuses of carried interest treatment, but in the main it is still possible for carried interest to be treated as gain.
It is assumed that Labour would change the rules to tax carried interest as income. At first it may seem unfair that Labour is happy with CGT rates for those building up and selling a business, but not for fund managers. A key difference may be that fund managers do not always invest any significant cash in the companies they hold shares in, so the return is more akin to a bonus than risking their own capital.
The Telegraph interview with Ms Reeves stated that she had previously set out plans to close this loophole, albeit she appears not to have specifically said this during the interview. So it appears this remains firmly on the table as Labour policy.
Property: business rates, land value tax, capital allowances
In her interview with The Telegraph in August 2023, Rachel Reeves confirmed that Labour “have no plans for a wealth tax. We don’t have any plans to increase taxes outside of what we’ve said.”
The article said that this was a shift from her stance two years previously when she had said that “people who get their income through wealth should pay more”. However she said that these remarks were made in the context of the plans to increase NIC by 1.25%.
The idea of alternative forms of taxation, including possibly some sort of wealth tax, however, appears to remain popular with some elements of the Party. The report on the 2022 Conference stated that the abolition of business rates, and replacement with a fairer system that will ‘incentivise investment and level the playing field between high street businesses and global giants’, was stated as ‘a key part of Labour’s Plan for Economic Growth’. This theme is also seen in the LabourList article’s tax policy section which included: ‘Scrap and replace the current system of business rates in England and Wales with a fully-costed and funded system of business property taxation’.
The report on the 2022 conference stated that Labour have said they would ‘review the option of a land value tax on commercial landlords’ as an alternative to business rates. A land value tax (LVT) was popular with activists on the left at fringe events. In its purest form an LVT would see every piece of land taxed on the basis of its value. It was claimed that this would not mean any more overall taxation, because the introduction of LVT would permit other taxes to be reduced or, in some cases, abolished altogether.
At the Conference Sir Keir confirmed that Labour is looking at how different forms of income are taxed, but he rejected suggestions that he wanted to impose a wealth tax. The general feeling was that a wealth tax would scare voters but it is popular in some sections of the Party. This is reinforced by The Telegraph interview with Ms Reeves.
At the 2022 Conference it appeared that Labour did not support the recent stamp duty land tax (SDLT) cuts. This refers to the reductions for lower-value properties (under £500k). It is assumed that Labour might reverse these but there is no suggestion that rates at the upper end should increase further.
Reform of the capital allowances regime was discussed but with very little detail. It is not clear if leasing is seen as abusive.
Non-doms
The LabourList article includes as a tax policy:
‘Remove the non-domiciled tax loophole, putting in place a system for genuinely temporary residents’
This refers to the favourable rules for non-domiciled individuals which allow such individuals to be taxed on non-UK income and gains only if remitted to the UK. This was also included as a policy in the LTTEP. The current system was perceived in the LTTEP as unfair and a disincentive for people to bring their money into the UK.
As with the proposed changes for fund managers, the Telegraph interview commented that Ms Reeves had previously set out plans to close this loophole. So again this appears to remains firmly on the table as Labour policy.
Private schools
Many private schools benefit from charitable status, meaning that they don’t pay tax on their income and gains. They are also exempt from charging VAT on school fees. Curiously the LTTEP did not include private schools on its target list, and we have no further detail on what is proposed for private schools, but one might assume that both these exemptions could be abolished.
Tax evasion and tax avoidance
The LabourList article refers to ‘Crack[ing] down on tax evasion and tax avoidance’. This is the most vague of the policy statements included in the tax section of the article. Most governments, including the current Conservative Government, see stopping tax evasion and avoidance as a policy objective, albeit they may have different views on precisely what constitutes tax avoidance.
There is no detail behind this statement. The LTTEP had said that Labour considered the current General Anti-Abuse Rule (GAAR) inadequate as it requires HMRC to seek permission from a panel before taking any action to stamp out abuses. The LTTEP proposed instead to introduce a General Anti-Avoidance Rule under which ‘any transaction lacking economic substance’ will be disregarded for tax purposes.
The LTTEP also included a number of specific policies aimed at stopping tax avoidance. We have summarised some of these below. As previously mentioned the LTTEP was published under Labour’s previous leadership and it is not clear whether, or to what extent, these remain Labour tax policy.
There were a number of proposals in the LTTEP aimed at multinationals.
- Closing the Eurobond loophole. This referred to an exemption from withholding tax for quoted Eurobonds. The purpose of the exemption is to allow companies to raise public funds more effectively on the Eurobond markets. In practice the exemption is widely used for intragroup and private shareholder loans. It is assumed that the exemption would be more carefully targeted so that it applies only to raising public funds as intended, rather than scrapped entirely, but this was not clear in the LTTEP.
- Advanced Thin Capitalisation Agreements. These allow multinationals to agree with HMRC their shareholder debt levels which in turn governs the amount of tax-deductible interest they can claim. The LTTEP seemed to regard these as being concluded on over-generous terms and proposed an investigation. The remedy was not stated.
- Co-operation internationally to introduce full country-by-country reporting across tax jurisdictions, whereby large groups would have to report how much profit they earned and how much tax they paid in each country. This is aimed at identifying those groups who earn substantial profits in a country but siphon off profits to low tax jurisdictions.
The LTTEP also included a number of proposals around tax transparency and tax havens.
- It proposed that the companies register would identify beneficial owners above a threshold higher than the current 25%. A register of trusts showing trust assets and beneficiaries was also proposed along with a proposal for public filing of tax returns for large companies and wealthy individuals earning more than £1 million.
- Sanctions against abusive tax havens and consultation on the introduction of a withholding tax levied against any dividend, interest and related payments to individuals or companies in abusive tax havens. The document didn’t define what it meant by an abusive tax haven. Another possible easy win for a government needing to raise money might be to extend withholding tax to dividends to non-residents generally. The UK is unusual in not having a withholding tax on dividends.
Pensions
Labour have also announced that they will reverse the scrapping of the pension lifetime allowance. This will have less impact than might initially be thought. The announcement means that in practice, people aren’t able to put unlimited amounts into their pensions at the moment as there would be penal tax charges if Labour returned limits to the previous amounts.
Other remarks
Our article has focused on statements and documents that throw light on Labour’s tax policy. However, any tax policy has to be viewed in the context of spending plans. During the Telegraph interview, Ms Reeves was quoted as making the following comments:
“I don’t have any spending plans that require us to raise £12 billion. So I don’t need a wealth tax or any of those things. We have no plans for a wealth tax. We don’t have any plans to increase taxes outside of what we’ve said. I don’t see the way to prosperity as being through taxation. I want to grow the economy.”
She added that she encourages members of Sir Keir’s front bench to come up with reforms and identify schemes that could be scrapped so that the money can be spent elsewhere, on the basis that she was “not going to be able to turn on the spending taps as Chancellor, because … the money is simply not going to be there”.
Her point being of course that Labour will not have to increase taxes as they have no grandiose spending plans. As with any government, its tax plans do to some extent depend on how well it manages to control spending.
The article is silent on the Party’s approach to government borrowing. Significant increases in borrowing would of course have its own fiscal implications, but that is beyond the scope of this tax article.
We look forward to keeping you informed about further announcements and any specific tax commitments once the main parties’ manifestos are available. In the meantime, if you would like to discuss how the possible tax plans outlined above might affect you, please get in touch with your usual BKL contact or use our enquiry form.
