Labour lines up new tax measures after landslide victory
Labour lines up new tax measures after landslide victory
After Labour secured its largest ever majority, Sir Keir Starmer and Rachel Reeves – the first female Chancellor – will now turn their attention towards making changes to several tax measures.
Labour has secured a landslide victory in the general election, with Sir Keir Starmer’s government set to usher in a handful of new tax measures.
The party ran a campaign promising change and after securing its largest ever majority, it now has the opportunity to do so, starting with Rachel Reeves becoming the first female Chancellor. Her predecessor Jeremy Hunt, meanwhile, narrowly avoided becoming the first Chancellor to lose their seat after winning an 891 majority.
There were some notable casualties on the night, with the likes of Liz Truss, Jacob Rees-Mogg, Grant Shapps and Penny Mordaunt all losing their seats, with accountancy candidates facing a near wipeout.
However, the focus will now turn to the tax challenges that await in the new Chancellor’s in tray.
Door open for tax increases
Labour had risked handcuffing itself a little by promising no rises in national insurance, income tax or VAT – although Nimesh Shah, CEO of Blick Rothenberg, recently told the No Accounting for Taste podcast (listen below) that would have been the case had either of the two main parties won.
AccountingWEBUK · No Accounting for Taste ep166: General election tax pledges picked apart
“The door opener, I suppose, for Keir Starmer and Rachel Reeves is that they do refer to no tax increases for working people and we don’t really know what that means,” he said.
“Keir Starmer talks about people who have to work and graft very hard, and those that cannot simply write a check when times get hard. I’m not sure that quite gives a clear definition of what working people may be, and I’m sure we’ll soon find out, but I think it does leave the door open for potential tax increases on higher earners.”
In his column for AccountingWEB, Philip Fisher noted that the manifesto promised to “ensure taxes on working people are kept as low as possible” having been cornered by Jeremy Hunt.
“As critics have pointed out, this theoretically leaves scope to tinker with capital gains tax and council tax,” added Fisher. “Cynics may also wonder whether this area of the manifesto might eventually give way to financial necessity before the end of the next parliament?”
VAT on private schools
A headline-making policy is imposing the standard rate of 20% VAT on private schools, the rollout of which would “not be straightforward”, warned Jason Croke.
“The Institute of Fiscal Studies (IFS) indicates charging VAT on private schools would generate revenue of £1.6bn per year,” he added. “It may not seem like a great deal but cumulatively over future years, the revenue raised could help build towards the overall pot of tax.”
However, he added that many private schools are small and often faith-based.
“Not all private schools are as famous or as wealthy as Eton.”
Shah recognised that the proposal had “caused quite a lot of concern with middle England; those families that have scrimped and saved to send their children to private school” but added that he doesn’t expect there to be a “huge displacement of lots of children, despite what the horror stories may suggest”.
With Labour having since delayed the introduction of the measure until September 2025, Shah suggests that’s a “bit of a watering down”.
“Again, I do wonder whether they're just trying to play it safe and come up with some options around what this may look like. In my view, it doesn't raise very much – £1.5bn in the grand scheme of things is not going to pay for many free breakfast clubs or school meals - and are there better revenue raising measures out there?”
Modern scheme
Elsewhere, Labour committed to replacing non-dom status with “a modern scheme for people genuinely in the country for a short period”. As part of this process, the use of offshore trusts to avoid IHT will end, said Fisher.
Shah noted that over the last couple of months, non-doms have been “very concerned about the direction of travel around the abolishment” of the regime.
“They're very worried about the inheritance tax exposure, the implication on trusts as well, some of which could be very, very costly and difficult to unwind, and the uncertainty that both the Conservatives and Labour have caused non-doms.”
However, Shah wondered if Labour has “heard some of that noise from the non-dom community and think that this might be an opportunity” to review the Conservative proposals – which, he added, were “done very haphazardly” and looked like they could have been “cobbled together in the last 10 days before the Spring Budget”.
“So I would hope that Rachel Reeves, who I've got a lot of time for – a sensible economist who talks very sensibly as well – might pause and also take consultation from people like ourselves on what a world-class regime could look like, because there is a one-off opportunity here to create something that would attract the right wealth and investment into the UK at a time when it is desperate for investment, especially in this sort of public infrastructure as well.”
HMRC investment
Tax avoidance was also under the spotlight in Labour’s manifesto, with the party stressing that it will “modernise HMRC and change the law to tackle tax avoidance”.
“We will increase registration and reporting requirements, strengthen HMRC’s powers, invest in new technology and build capacity within HMRC. This, combined with a renewed focus on tax avoidance by large businesses and the wealthy, will begin to close the tax gap and ensure everyone pays their fair share.”
It’s been no secret that HMRC has been in dire need of investment, having come under heavy criticism in recent years for long waiting times and poor standards of service.
As such, Shah recognised that taxpayers and advisers alike would be happy about the measure but stressed that the “proof” will be in what actually happens noting that the proposed £850m investment “doesn't scratch the surface”.
“There's a real issue with HMRC, I think, culturally and it requires a complete overhaul,” he said, added that the department hasn’t “kept up with the complexity of the tax system”.
“So a project like Making Tax Digital, where you must have to put in millions and millions of pounds to try and modernise the IT infrastructure for HMRC to keep up with the current, modern-day system – I just don’t think they can do that.
“Hopefully, Rachel Reeves will maybe take a pause on introducing even more legislation and more complexity, and get HMRC upgraded to where it really needs to be because a big part of our tax gap is actually non-compliance through innocent error and ignorance - people just cannot get the right information in order to pay the right amount of tax.”
Taking a step back
While Sir Keir Starmer now has the keys to Number 10, how soon are we likely to see the changes that’ve been promised? Not right away.
“I would hope that we take a step back in that post-election period,” said Shah, with Reeves having also confirmed that there would be no emergency Budget.
“Ideally, I’d like to see nothing in that first Budget other than to set the scene about where the country currently is in terms of its finances and the areas of consideration, and then have proper stakeholder consultation around all areas of taxation.
“Please do take input from the very nerdy professionals that exist and are very passionate about policy and driving change within our tax agenda because that only makes for a better business environment, which helps all of us.”
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