Labour leader Keir Starmer (pictured) has labelled wealth creation as the party’s number one priority should it be elected, as he unveiled the party’s manifesto this morning (13 June).
At the launch event, Starmer said Labour would not raise personal tax rates.
The manifesto does include plans to raise £8bn through a range of measures, such as through introducing VAT on private school fees and a windfall tax on oil and gas.
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“Until now, Labour’s approach to fiscal policy has rhetorically at least, been tacking fairly close to the Conservatives – and this manifesto is no different,” said Lizzy Galbraith, political economist at Abrdn.
“Nevertheless, there are legitimate questions over how sustainable an approach this is for a party who, after all, will want to do and act differently than their predecessors.
“Labour will be looking to generate some fairly substantial economic growth over the short term (leaving taxes to one side). So, it is likely that the fiscal rules will shift at some over the next Parliament. Rachel Reeves has previously spoken about how fiscal rules could better enable long-term public sector investment.
“For example, using a metric such as public sector net worth rather than the current public sector net debt to measure performance may enable a little bit more fiscal wiggle room. Labour would argue that it’s better to consider the long-term value of things like infrastructure and capital expenditure, which would be a better reflection of the long-term value of government spending, rather than just considering it in terms of the amount of debt that spending generates.
“Whether something like this could be implemented in practice is yet to be seen. It would likely involve an assessment by the Office for Budget Responsibility (OBR).”
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Rachael Griffin, tax and financial planning expert at Quilter, said that the lack of confirmation around plans for capital gains tax (CGT) could cause concern for investors.
“The conspicuous lack of confirmation from the Labour manifesto that it would not raise CGT will spark significant concern among entrepreneurs and investors in the UK. Both shadow chancellor, Rachel Reeves, and Sir Keir Starmer have in recent interviews doubled down on the fact they have ‘no plans’ to increase CGT rates without completely ruling it out. However, in its manifesto Labour has explicitly ruled out increases to income tax, National Insurance, VAT and corporation tax, but make no mention of CGT.
“Those who face CGT in the UK – primarily higher rate taxpayers and entrepreneurs who realise gains from the sale of residential property, investments, and other chargeable assets – have already seen their annual exempt allowance slashed by the current Conservative government to just £3,000 a year. If Labour is to win the general election and then increase rates, it would serve as a double whammy with higher rates and lower exempt allowances considerably increasing the capital gains tax take.
“Under the current system, higher rate taxpayers face a 24% CGT on residential property gains and 20% on other chargeable assets. The potential alignment of CGT rates with income tax rates, if that is what ends up being enacted, could see these figures rise dramatically, impacting not just the wealthy but also a substantial number of small business owners and investors who play a crucial role in driving the economy in the UK.”
Jason Hollands, managing director at Evelyn Partners, said the Labour manifesto is “pretty minimalist” compared to the Conservatives “maximalist” manifesto, especially when it comes to tax policy.
“The Tory document contained a pledge to ‘not introduce any new taxes on pensions’ and also not to increase capital gains tax. The Labour document does not and this will inevitably drive speculation over the coming months, which might be partially dampened if such measures are absent from the first Labour Budget that will probably be held in the autumn,” Hollands said.
“Within Labour there are enthusiastic advocates for raising capital gains tax, even aligning it with income tax rates. However, a move to raise tax on gains made on the sale of assets would discourage risk taking and investment and be incompatible with the theme of supporting wealth creation that is central to Labour’s electoral pitch.”
