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The ‘conspiracy of silence’ behind Labour’s secret plan for a wealth tax raid


Perhaps the most notable part of the Labour manifesto was what it did not say.

Sir Keir Starmer has ruled out rises in income tax, National Insurance, VAT and the headline corporation tax rate. He and Rishi Sunak, the Prime Minister, have been in a “tax lock arms race”, according to Institute for Fiscal Studies director Paul Johnson.

What Johnson wants to know more about, however, is what taxes Starmer does intend to raise.

The IFS chief has accused both parties of a “conspiracy of silence” over the true scale of the economic and fiscal challenge facing the next administration.

Whoever wins power will have to choose between raising taxes by more than they have outlined in their manifestos, cutting public spending further, or increasing borrowing, Johnson says. On current form it will be Starmer confronting this choice come July 5.


Johnson says it will be “a considerable surprise” if taxes are not raised over the next five years.

Huge public spending pressures, a commitment to get debt falling, ballooning debt interest bills, sluggish growth and the fact that Britain’s population is getting older and sicker will all force Starmer’s hand, the IFS believes.

But even without these forces there are glaring gaps in both parties’ manifestos, the think tank says.

Labour and the Tories have both pledged to reverse a decade of rising waiting times in the NHS but have not outlined how they would do so. Labour has also pledged to draw up a plan to reduce child poverty.

Promises like these “appear to imply all this can be delivered for free. It can’t,” Johnson said at a press conference on Monday.

Given Starmer has ruled out so many tax rises, it is fair to speculate on where he will find the extra cash needed. Simply by a process of elimination, a raid on the wealthy looks likely.

Wealth levies such as capital gains and inheritance taxes are one of the most obvious areas for a Labour government trying to raise revenue to target, says Helen Miller, deputy director and head of tax at the IFS.

“If they want big money and they have ruled out the big taxes then looking at capital incomes would be the place they would look,” says Miller. “They are maybe the most obvious in the sense of if you want something big and chunky.”

A clear target is capital gains tax (CGT). CGT brings in £15.2bn a year for the Treasury and is charged on profits from the sale of assets, which includes shares, businesses and property that is not a primary home.

Capital gains are taxed at lower rates than other forms of income and there is suggestion that this gap could be closed.

However, Miller says: “If they wanted serious money – I’m talking about billions as opposed to just rounding errors – then they would have to actually start looking at serious reform.”

This could involve broadening the number of people who pay the tax and removing various reliefs.

Starmer has ruled out introducing CGT on the sale of people’s primary homes but a new Labour government could look at broadening the tax elsewhere, says Miller.

Labour has promised not to “raise taxes on working people” but further investigation of this idea shows that what they mean is income earned from work, suggesting investment gains are still on the table.

According to a memo seen by The Guardian, Labour estimates that raising CGT rates could raise a further £8bn for the public purse.

“We are starting from ground zero with our public services and infrastructure,” a senior Labour source told the paper. “We have to show we are serious about borrowing and raising revenue from taxes if investors are going to walk in step with us. These measures are part of unlocking wealth and putting it to work.”

Another means of raising revenue could be through raising inheritance tax, which brings in £7.5bn a year for the Government. A clamp down on reliefs is a key measure being looked at by Labour, according to The Guardian.

Existing inheritance tax rules mean people can gift farmland tax-free when they die and pass on some business assets with 100pc relief. Pension death benefits are also typically free of inheritance tax. These are the types of tax breaks Starmer may seek to target.

Rachel Reeves, the shadow chancellor, has denied that Labour has plans to raise taxes at an expected upcoming autumn budget, but draft documents and analysis of revenue raising policies have reportedly been circulating among senior officials.

Even if Labour does tighten up the regime on death taxes and launch a raid on investments, it may not be enough.

“You can do some things with inheritance tax, some things on capital gains tax and some things with other taxes; you can start to raise noticeable amounts, but not really, really big ones,” says Johnson.

The cost of Labour’s plans and the growing burden of both debts and an ageing and ill population mean even more groups could find themselves in the firing line for higher taxes.

Johnson believes motorists could eventually be hit with road pricing – a novel and controversial new tax.

Fuel duty has been frozen at 2010 levels for the last 14 years, creating an increasingly large fiscal hole for future governments. At the same time, the shift to electric vehicles means that revenue will fall further, warns Johnson.

“Even if we manage to raise fuel duty in line with inflation for the first time in 15 years, [fuel duty revenue] is still going to go down and down as we move to electric cars. We need a government that is going to deal with road pricing, or some other way of getting some of that revenue back,” says Johnson.

Speaking at a Bloomberg debate on Monday, shadow business secretary Jonathan Reynolds denied that Labour’s plans for the economy were “fanciful”. He said: “The answer has got to be breaking out of this low growth, high tax, poor services doom.”

One of Labour’s key pledges is to secure “the highest sustained growth in the G7”. If the economy grows by more than expected, it will ease the strain on the public finances. Labour’s plans to reform the planning system could help here, says Johnson.

However, the party’s net zero ambitions clash with its growth goals, warns the IFS chief. Proposing to put £5bn a year into green projects “is not the same priority as growth”.

A new government that wants to prioritise growth would invest in transport or skills, rather than green projects, Johnson says.

Even if growth exceeds forecasts, it will only allow a new government to avoid planned cuts in public spending, Johnson warns.

“It will not create a spending bonanza of any kind.”