With a general election less than 18 months away, thoughts are turning towards the potential policies of a new occupant of 11 Downing Street.
With most opinion polls showing a lead for the Labour Party of around 20%, what the Shadow Chancellor, Rachel Reeves, says about her approach to public finances is gaining ever more attention. Her stance so far has been to talk only of three specific tax changes:
- Removing the current exemption from VAT for private school fees;
- Scrapping the rules that favour wealthy UK residents who are non-domiciled; and
- Ending the generous (28%) capital gains tax treatment of carried interest for private equity managers and replacing it with an income tax charge.
Like most politicians hoping to win power at the next election, Ms Reeves has studiously avoided proposing tax increases that could affect the broad electorate. However, given the level of government borrowing (about £130 billion in this financial year) and the pressures on public services, many economists see tax rises – beyond those already baked in – as inevitable.
One possible clue to what future tax changes might look like emerged in a recent report from the Resolution Foundation. The chief executive of the think tank, Torsten Bell, was formerly Ed Miliband’s head of policy and a Treasury civil servant who became special adviser to the last Labour Chancellor, Alistair Darling. The Foundation’s report listed a set of tax reforms which, as a complete package, did not raise any additional revenue but did reshape some tax structures.
For example, the report recommended that the phasing out of the personal allowance above £100,000 be scrapped because of the “regressive” 60% marginal rate of tax it created. For the same tax-rate-distorting reason, the report proposed scrapping the High Income Child Benefit Charge, triggered at £50,000. But, before you raise a cheer, the report’s quid pro quos included lowering the starting point of the additional rate (45% outside Scotland and 47% in Scotland) to £100,000 (from its recently lowered £125,140) and raising the basic rate tax levied on dividends from 8.75% to 20%.
History suggests that Chancellors – of all hues – are more prone to co-opt sensible tax-raising ideas than those that cut Treasury income, so whoever wins the next election, the need for a regular review of your tax planning should remain a priority.
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18th August 2023