During the election campaign, Labour promised it “won’t raise taxation on working people” – widely interpreted as VAT, National Insurance and income tax. Since taking office in early July, ministers have been preparing the ground to bring in tax moves which bend, without explicitly breaking, these pledges.
We heard hints last week that National Insurance contributions paid by employers will rise – already charged at a headline rate of 13.8pc on staff earnings. Such a move, reasonably in my view, is being billed by opponents as “a tax on jobs” – making it more expensive for firms to hire, while undermining investment and broader economic growth.
Having said that, it’s a defendable policy – albeit one I oppose – that should help shore up the public finances, at least in the short term. And the Tories, in their time, have raised employer National Insurance contributions too.
The Labour tax rises being introduced or mooted that I have a problem with are the more “ideological” ones – which the party is determined to implement for reasons of political identity and internal party management, whatever the impact on ordinary people and the broader economy.
The most obvious of these is VAT on school fees – now set to start in January rather than next September, as Reeves previously indicated. There is strong evidence – and I say this not because I’m an independent school governor – this will raise far less than the £1.5bn Labour claims.
As cash-strapped parents, frightened by fees rises of up to 20pc, flee to the state sector, this policy could easily cost the state money. But Labour’s leadership needs a bone to throw the hard-Left – so it’s about to make the UK one of the few countries in the Western world that taxes education.
The same can be said for sharp rises in capital gains tax – which could easily backfire and cost the Treasury £2bn, according to HMRC analysis. But again, Labour needs to “tax business fat cats” to appeal to the party faithful.
The reality is that big corporates will take sophisticated steps to avoid paying the higher rate – leading to a lower tax take. It’s middle-income families who will be hit, those who have worked hard and are looking to sell their single buy-to-let property to fund a secure retirement.
I’ve written in the past that, while I back Labour’s plan to tax land value uplift when agricultural land is granted residential planning permission, those funds should be shared between landowners and the state and earmarked for local infrastructure.
But Labour wants to grab the lot – which will result in a tsunami of lawsuits without providing any new land for housing. Again, ideology ruining a good idea.
And as for taxing capital gains on principal residences – being mooted in government circles – this is another ideologically driven idea which, outrageously, would take a wrecking ball to the financial plans of millions of ordinary families who have worked a lifetime to create some kind of financial security.
Labour’s talk of a “ghastly economic inheritance” is belied by new data showing inflation and unemployment down and higher-than-expected growth. The public finances are extremely weak, granted – but the idea ministers “discovered a £22bn black hole” on entering office is sophistry.
While I have a lot of time for Reeves personally, she needs to channel her training as an economist, rather than her political ideology – and stop talking as if Labour has a monopoly on morality.
How about the morality of borrowing more to spend on bloated pays deals for the fifth of the workforce in the public sector, paid for by the rest of us – private sector workers who on average get lower pay and enjoy far worse terms and conditions than their state counterparts?
And how about the morality of shelling-out an astonishing £89bn during this fiscal year on debt interest, according to the Office for Budget Responsibility? That’s twice what the Government spends on defence each year and more than it spends on schools.
And it’s a bill that’s likely to go up, even as headline interest rates ease, as Labour does what is “fair and right” and borrowing surges over the months and years to come.