Yahoo Finance Labour ‘will launch £15bn tax raid’ if it wins super-majority
Rachel Reeves will launch a £15bn tax raid on pensions, capital gains and inheritance this autumn if Labour wins a super-majority, a leading City forecaster has warned.
Analysts at the investment bank Citi said the shadow chancellor was likely to bow to demands for higher public spending, adding that Labour could extend a stealth raid on workers’ pay packets if it wins the election.
Benjamin Nabarro, its chief UK economist, said Labour would “ultimately tax and spend more than the current baseline”, warning that the “rot” of low growth in the UK economy had become entrenched by a wave of post-crisis regulation.
It said the next five years were likely to lead to a “painful, but also probably unavoidable” path to higher taxes under Labour.
Mr Nabarro said slashing reliefs on pension contributions, inheritance tax and capital gains were easy targets for the party, raising up to £8bn a year alone amid widespread fears that Ms Reeves is plotting a fresh raid on retirement pots.
Mr Nabarro said: “We therefore expect some further tightening in the autumn.
“Here the most likely revenue candidates could be changes in pension contribution relief after Rachel Reeves ruled out changes in the lifetime allowance, reform to capital gains and changes to inheritance tax. These are in addition to revenue changes in Labour’s manifesto.”
Ms Reeves has repeatedly refused to rule out an increase in capital gains tax but insisted Labour has “no plans” to increase the levy.
Labour has ruled out increasing income tax, National Insurance and VAT but senior party figures have repeatedly failed during the campaign to rule out other tax rises.
Mr Nabarro said he believed Labour could be plotting other tax rises. “Wider reforms – such as changes to council tax – will probably take longer. We would not rule out changes to various tax thresholds – including income tax. But in total, we think a total tightening of £15bn in an October budget is not an unreasonable base case here.”
Jeremy Hunt, the current Chancellor, has already presided over a six-year freeze in income tax thresholds that will drag millions of people into higher tax bands by the end of the decade.
Citi’s analysis comes just days after a leaked recording revealed Labour is considering an inheritance tax raid to “redistribute” wealth if it gets into power.
Darren Jones, the shadow chief secretary to the Treasury, suggested higher death duties would be used to tackle “inter-generational inequality”.
Pat McFadden, Labour’s national campaign coordinator, failed to rule out such a move on Wednesday.
He told Good Morning Britain: “From that moment we’ve said that nothing in our manifesto requires us to raise any taxes beyond the very specific things that we’ve set out in the manifesto, and that remains the position on this as with anything else.”
Bim Afolami, the economic secretary to the Treasury, said: “Labour are plotting a hidden tax raid that is not in their manifesto and if they are given a super-majority on Thursday they will be free to impose it.”
Citi noted that even a Conservative majority was likely to involve “some [fiscal] tightening” but this would come “in fits and bursts”.
Warning that the UK’s tax and spending outlook remained “dark”, Mr Nabarro added that Labour would also have to increase defence spending, putting further pressure on Whitehall budgets.
“Demand for additional spending remains significant. In recent years, performance indicators for the public sector have deteriorated. Metrics such as waiting times for A&E, elective surgery, or the gap between reported offences and prosecutions have all widened,” he said.
“Other historical supports such as trend reductions in defence spending are also likely to reverse – we think any government will now likely increase defence spending to 2.5pc GDP by 2030.”
Citi also warned that the end of an era of ultra-low interest rates and cheap public borrowing for the UK would also keep borrowing and therefore Britain’s debt burden high.
Mr Nabarro said: “The challenge is adjustment to this new fiscal reality is only now beginning.”
