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Labour’s Tax Landscape: How Labour’s Tax Policy Has Followed The Twists And Turns of Starmer’s Leadership

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Keir Starmer’s leadership of the Labour Party has charted a three-stage course – firstly, internal reform of the Labour Party; secondly defining the Conservative brand as broken whilst setting up camp on the centre ground; and finally outlining Labour’s agenda for change. 

As the Party’s tax policy has unfolded, it too has followed the twists and turns of this path to electability. So, where has Starmer landed on tax and what would the tax landscape look like under a Labour government?

a divided party

Starmer took over the leadership of a highly divided party. Seeking to consolidate his own position internally, he initially prioritised small, and highly-targeted tax policies that spoke to the Party’s traditional, left-of-centre base. Thus, in 2021, Labour said it would scrap the carried interest tax rules, which see the profits made on investment deals put together by private equity fund managers taxed at the capital gains tax rate of 28%, rather than the income tax rate of 45% for higher earners. In that same year – and to plaudits from that same left-leaning Labour base – Shadow Chancellor Rachel Reeves announced that fee-paying schools would no longer be exempt from VAT and that their charitable status would be scrapped.

As Starmer’s leadership has moved beyond this initial stage, both positions have softened – at least in language, if not in practice. Whilst Reeves used tough words around asset stripping when first announcing the carried interest tax policy, both she and Starmer have this year begun to meet with private equity bosses, emphasising their importance to growing the economy. Some on the inside of the industry now hope that a reform of carried interest rules, rather than abolishing the treatment of carried interest as a capital gain, might be a possible way through – though a Labour spokesperson reiterated in April 2023 that the policy would be included in a Labour manifesto. Fee-paying schools, whilst still being subject to VAT, will also now retain their charitable status.

resetting Labour’s brand

Moving on to phase two of his leadership, Starmer turned his sights externally, seeking to define the Conservatives as broken, whilst resetting Labour’s own brand as a firmly centrist, credible and stable alternative with the voting public. Hoping to address the accusation that Labour remained a tax-and-spend Party – not helped by Starmer’s own 2020 suggestion that he would increase the top rate of tax – Reeves reset the agenda, saying that an increase in the top rate of tax to 45% was now off the table. Starmer has since solidified this position, confirming that there will be no increases to the income tax rate, with a consistent message that Labour will not go into the next election “increasing the tax burden on working people.” This narrative makes it difficult for Labour to reverse Jeremy Hunt’s recent National Insurance cut, and in her response to the Autumn Statement, Reeves reiterated the message that previous NI rises were a tax on working people, despite the squeeze in departmental budgets that Hunt’s move creates.

Labour has further ruled out a wealth tax, but remained vague on plans for inheritance tax, saying that whilst the Party is not in favour of inheritance tax cuts, it wouldn’t commit to reversing any changes that the current government might make in the Spring Budget. Frequent mentions of closing loopholes that help the wealthiest avoid tax has led to some speculation that Labour is considering scrapping or curtailing two existing inheritance tax exemptions – business and agricultural property relief. These exemptions allow smaller businesses and farms to be passed down through families without paying the 40% inheritance tax charge. In light of the Liz Truss budget fiasco, Labour has provided cover for these vagaries on taxation policy by committing to introduce a new Charter for Budget Responsibility, guaranteeing in law that any government making significant and permanent tax and spending changes will be subject to an independent forecast from the Office for Budget Responsibility.

Labour’s agenda for change

The final turn in Starmer’s leadership journey has been setting out Labour’s agenda for change, and this phase has seen the Party at pains to position itself as pro-business, with a raft of messages designed to bolster confidence. The promise of a stable transition has been underlined with a March 2023 statement that Labour has no plans to increase in the rate of Capital Gains Tax, although changes to exemptions or reliefs do not seem to have been ruled out at this stage. Labour backed the government’s increase in the Corporation Tax rate in 2023 and have thus far given no indication that they want to raise it further. British firms will further be encouraged by suggestions that the burden of business tax with be shifted away from high streets and SMEs and towards online tech giants and multinationals through the supporting of the implementation of the OECD global minimum rate of corporate tax and the backing of an international agreement on the fairer taxation of large multinationals. Labour has also stated its ambition to replace the current system of business rates in England and Wales, with a new system that incentivises entrepreneurship and business investment, especially in those areas that contribute to decarbonising the economy,  or support the usage of empty properties.

Other tax policies have also emerged along the way. Starmer has committed to ending the non-domiciled tax loophole and putting in place a new system for genuinely temporary residents. Decrying the huge profits banked by oil and gas companies for their shareholders whilst many householders struggle to afford their energy bills, he has similarly called for the loophole in the oil and gas windfall tax – which allows companies to reduce the amount they pay if they invest in new oil and gas exploration in the UK – to be closed. Labour has also committed to increasing the Stamp Duty Land Tax surcharge for overseas property owners. Currently set at a 2% surcharge for non-UK buyers, there is no indication of how much Labour would increase this by.

BUILDING CREDIT AND balancING LABOUR'S tax messages

From a catastrophic defeat in 2019, Labour has had a mountain to climb. In just four years, Starmer has had to wrestle back internal control of the Labour Party whilst maintaining an appeal to its traditional core vote; reclaim both credibility and the centre ground, easing the electorate’s historic concern that Labour is a tax and spend party; and reposition itself as pro-business, promising stability and bolstering confidence. Labour has been canny in navigating the balanced tax messages that this journey has necessitated.

And so, where have Labour now landed on tax? The long and short of it is, non-doms, fund managers or a private school fee-payers aside, it is difficult to put a piece of paper between the Conservative and Labour positions on tax. The key message Starmer has been driving home is that the tax burden should not be increased for working people – changes to income tax rates are not part of the plan, but those who make money through carried interest, non-dom status or tax exemptions could expect a bumpier road. Labour have also been at pains to stress that the tax regime needs to be fair to business – especially to SMEs – and so investment and entrepreneurship will be rewarded, but larger companies must recognise that they need to take their fair share of the tax burden too. And the final thread that has been woven though Labour’s tax narrative from almost the beginning of Starmer’s leadership, is that all tax raised needs to be spent properly and wisely. With at least 8 separate mentions of this in Rachel Reeves’ recent conference speech, Labour’s promised new Office for Value for Money could expect to be very busy indeed.

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