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Top economists say Labour will have to raise more taxes if it wins election

Labour has vowed not to raise income tax, corporation tax national insurance or VAT, which represent around two-thirds of government revenue. Photo: PA
Labour has vowed not to raise income tax, corporation tax national insurance or VAT, which represent around two-thirds of government revenue. Photo: PA

The UK’s leading economists widely agree that Labour will put up more taxes if it wins the general election on 4 July, a City A.M. poll suggests, as the party comes under pressure to explain how it will fund its plans.

Of 14 top City economists surveyed, all said that if elected, Labour would have to raise taxes beyond those already announced. Keir Starmer is widely expected to become the UK’s next prime minister, according to polls.

Asked which specific tax Labour would be most likely to raise, 86 per cent of economists said capital gains tax. Reports over the weekend claim Labour is weighing options for how it could raise money through extra wealth taxes, including increases in capital gains tax and changes to inheritance tax rules.

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The Guardian reported that a Labour memo estimated increases to rates of capital gains tax could bring in £8bn for the Treasury in the long term.

Labour has vowed not to raise income tax, corporation tax, national insurance or VAT, which together represent around two-thirds of government revenue.

One of the economists, who asked not to be named discussing political matters, said Labour would need to raise income tax and national insurance.

“Their current plans are not credible and simply won’t raise enough revenue for their proposed spending plans,” they added.

Other options include council tax and cutting relief on retirement savings, both of which would face backlash from many voters.

In response to City A.M.‘s survey, a Labour spokesperson commented: “Keir and [shadow chancellor] Rachel [Reeves] have made clear that our priority is growing the economy, not increasing taxes.

“We have set out fully costed, fully funded plans, with very specific tax loopholes we would close. Nothing in our plans requires any additional tax to be increased.”

While most respondents expected the Conservatives would also have to raise more taxes, there was more of a split among economists. Nearly three-quarters (72 per cent) expected tax rises, while 29 per cent said the Tories would not have to increase taxes.

Still, asked which parties’ manifesto would be better for stimulating economic growth, 64 per cent backed Labour, compared to 36 per cent for the Tories.

“We don’t expect either manifesto to be implemented in their current form,” one economist noted.