Measures on the table include increasing rates of National Insurance paid by employers, raising capital gains tax, hiking fuel duty, reforming inheritance tax and cutting entitlements to tax-free pension withdrawals. Such changes come on top of Labour’s manifesto pledge to scrap tax perks for wealthy “non-doms”.
As well as a higher tax burden, businesses face added costs from the overhaul of workers’ rights being brought forward by Angela Rayner, the Deputy Prime Minister. An official impact assessment released on Monday estimated that the new regulations would cost companies almost £5bn a year.
The cost of meeting net zero goals by the end of the decade, which include an ambition to decarbonise the electricity grid and ban the sale of new petrol and diesel cars, will also weigh on growth, the Commission said.
If Ms Reeves pushed ahead with all of these measures at once in their most extreme form, GDP per person would be £29,012 by 2030 instead of the £32,800 if there were no policy change, the economists said.
The package of tax rises would completely outweigh the small increase in economic growth from Labour’s planning reforms, which the commission said should add 0.8pc to GDP per capita by 2030.
The reality of Labour’s Budget is unlikely to be as extreme as the scenario envisioned by the Growth Commission. Its calculations include an increase in capital gains tax rates to 40pc, a level far higher than what is likely. Sir Keir Starmer, the Prime Minister, said last week that a rise to 39pc would be “wide of the mark”.
However, the report highlights the risks faced by the Government as higher taxes and regulation would undermine Labour’s manifesto pledge to “achieve the highest, sustained growth in the G7”.