Rachel Reeves faces mounting pressure within Labour to raise capital gains tax in a bid to fund public services without increasing VAT, income tax, or National Insurance. Here’s the full story.
Rachel Reeves Under Pressure
Rachel Reeves, the Shadow Chancellor, has found herself under significant pressure from within the Labour Party to raise capital gains tax (CGT) as part of an extensive autumn budget.
Tax Alternatives Needed
Labour leader Keir Starmer has ruled out increases in VAT, income tax, and National Insurance contributions, so Reeves is exploring alternative methods to generate the necessary revenue to support crumbling public services.
Fiscal Challenges Ahead
As the public finances face severe strain, Labour is considering various fiscal measures to address the economic challenges ahead.
“Doctor’s Mandate”
Labour insiders have told the Guardian that Reeves aims for a so-called “doctor’s mandate” to justify the need for extensive financial interventions.
“Major Surgery”
The dire state of the UK’s public finances, described as needing “major surgery”, has led Reeves to consider up to a dozen revenue-raising measures.
“Kitchen Sink” Strategy
Reeves is reportedly adopting a “kitchen sink” strategy, releasing all the bad news simultaneously to justify drastic measures.
Labour Denials
A Labour spokesperson denied that any such strategy was necessary, stating, “We have fully costed, fully funded plans, and have set out the specific tax loopholes we would close to bring in an immediate injection of cash into our public services.”
No New Taxes
They continued, “Nothing in our plans requires any additional tax to be increased and there will be no return to austerity if Labour are elected on 4 July.”
Tax Debate
Labour has been thrust unwillingly into a debate over tax plans following Prime Minister Rishi Sunak’s accusations in the first leaders debate that Starmer was planning substantial tax hikes for households up and down the country.
Furious Denials
Labour has furiously dismissed these claims as untrue, with Starmer even suggesting that Sunak had broken the ministerial code by lying in the debate and Shadow Cabinet Office Minister Jonathan Ashworth describing him as a “Boris Johnson-style liar.”
Defensive Position
Shadow Defence Secretary John Healey was asked on Sky News’ Breakfast with Kay Burley if Labour had plans to raise taxes, replying, “None of our plans require us to look at extra tax, but we of course have to see what the true state of the public finances is when we get to open the books.”
No Tax Raises
Under persistent questioning from Burley, Healey stated, “We will not raise the taxes that are most important to working people.”
Conservative Criticism
In response, Laura Trott, chief secretary to the Treasury, stated that Healey’s evasive response “shows once again that Labour won’t rule out a swathe of taxes on families.”
“You Name It, Labour Will Tax It”
He followed up with the Conservatives’ latest attack slogan on Labour: “You name it, Labour will tax it.”
CGT Increase Considered
An increase in CGT has garnered significant attention among the various measures under consideration.
CGT vs. Wages
Currently, profits from selling second homes or business shares are taxed at lower rates than wages.
Raise CGT Rates
Some Labour members advocate raising CGT rates to align with income tax rates, potentially increasing the higher rate from 24% to 40% or even 45%, which could generate an estimated £8 billion.
Fiscal Plan Warnings
However, despite these proposed tax rises, Labour’s fiscal plans have come with warnings from think tanks and economic experts about the challenging financial future the country is facing.
Resolution Foundation Report
A recent report from the Resolution Foundation highlighted the need for the next government to find £19 billion in annual cuts to unprotected departments by 2028-29.
Budget Reductions Likely
This scenario likely results in significant budget reductions for critical areas such as courts, local government, and the Home Office.
“Pay More Tax”
Speaking anonymously to the Guardian, one former Treasury official noted, “In the end, not least for demographic reasons, this country is going to have to pay more tax, and Labour is going to have to find ways to raise it.”
“Honest Conversation”
They added, “The British people are crying out for an honest conversation about this.”
Health Levy Return
Some other measures Labour is reportedly considering include reintroducing the health and social care levy.
Levy History
This levy, a 1.25 percentage point increase in National Insurance that would also apply to pensioners, was initially introduced by Boris Johnson but later scrapped.
Macpherson Supports Levy
Sir Nicholas Macpherson, the former head civil servant at the Treasury, wrote an article in the Financial Times favouring such a plan, stating, “The new chancellor will at least have several months to come up with a creative solution to this tax conundrum. I would advise them to look again at the health and social care levy.”
Election’s Tough Decisions
With the election fast approaching and the country’s finances in such terrible shape, whoever is Chancellor on 5 July will have to make some tough decisions.
Pre-Election Uncertainty
It remains to be seen if the public will be told what these difficult decisions might entail before the election.
Featured Image Credit: Shutterstock / Martin Suker.