Labour’s plans for tax
By Susan Cattell, Head of Tax Technical Policy
29 July 2024
We take a look at the tax changes the new Labour government might announce in its first Budget this autumn.
Labour’s election manifesto didn’t contain any major tax surprises, and the biggest promises were negative ones. Labour has committed to not increase the rates of income tax, National Insurance, VAT or corporation tax. This clearly restricts the government’s tax choices. As we have pointed out, the unwillingness of recent governments to increase the main revenue-raising taxes has resulted in a lack of transparency, opaque tax changes and more complexity.
Policy making
We have called for the government to hold a single annual fiscal event, to facilitate good consultation and the development of effective tax policy. We also want the government, HM Treasury and HMRC to make sure that more consultations include all five stages set out in the 2011 ‘Tax Consultation Framework’.
While the new Chancellor has not commented specifically on the approach to tax consultation, the government has said there will be one annual fiscal event and announced a new ‘fiscal lock’ to guarantee that the Office of Budget Responsibility (OBR) will publish a forecast to accompany any major decision on tax and spending. The King’s speech included a commitment to put this requirement into legislation.
Labour tax commitments
Other than saying that it would not raise the main tax rates, the new government had set out some changes it will make:
- Charging VAT on private school fees (and applying business rates to private schools): This was included in the King’s speech, but without any details. After the Chancellor's speech to parliament on 29 July, HM Treasury published a technical consultation on the VAT and business rates changes affecting private schools which provides further information.
- Closing the carried interest tax ‘loophole’: Broadly, the profits of private equity funds paid to individuals as ‘carried interest’ are currently subject to tax as capital gains. The Labour manifesto didn’t set out in detail how it would change the rules, but after the Chancellor's speech to parliament on 29 July HM Treasury published a call for evidence inviting views from stakeholders on the government's plans to reform the tax treatment of carried interest.
- Increasing the rate of stamp duty land tax (SDLT) on purchases of residential property by non-UK residents by 1%.
- Closing the ‘loopholes’ in the windfall tax on oil and gas companies: The manifesto stated that Labour will extend the sunset clause in the Energy Profits Levy until the end of the next parliament and will increase the rate of the levy by 3%. It will also remove the ‘unjustifiably’ generous investment allowances. Following the Chancellor's speech to parliament on 29 July, HM Treasury published a policy paper setting out the changes to the Energy (Oil and Gas) Profits Levy (EPL) 'in line with the government’s manifesto commitments'.
- Abolishing non-dom status: This was a longstanding Labour policy that was taken up by the Conservatives before the election. Some of the details of the proposals set out by the previous Chancellor will now change, particularly in the area of inheritance tax (IHT). The manifesto said: “We will abolish non-dom status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period. We will end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here.” After the Chancellor's speech to parliament on 29 July, HM Treasury published a policy summary setting out the 'changes being made to the taxation of non-UK domiciled individuals from April 2025'.
- Modernising HMRC and tackling tax avoidance: Labour’s manifesto set out plans to raise significant revenues from tackling tax avoidance. It stated that this would be driven by an additional £855m per year investment in HMRC. Specifically, the manifesto said that: “We will increase registration and reporting requirements, strengthen HMRC’s powers, invest in new technology and build capacity within HMRC. This, combined with a renewed focus on tax avoidance by large businesses and the wealthy, will begin to close the tax gap and ensure everyone pays their fair share.”
- Publishing a roadmap for business taxation for the next parliament to allow businesses to plan investments with confidence. This would be a welcome move from the new government; businesses need certainty about tax to plan and commit to investment.
Labour’s first Budget
Since the election there has been considerable speculation about how Labour might try to increase tax revenues without increasing the rates of the main revenue-raising taxes. Possibilities include:
- Increasing the rates of capital gains tax or aligning the rates with income tax rates.
- Pensions: Restricting tax relief on contributions, reducing or removing the tax-free lump sum and changing the IHT treatment.
- Inheritance tax: Abolishing or capping Agricultural Property Relief and Business Property Relief.
Given Labour’s emphasis on growth, potentially they might want to offer some new targeted tax incentives to businesses or increase some existing reliefs to encourage investment.
We won’t know whether Labour will actually do any of these things – or what else they will do – until the Chancellor delivers her first Budget on 30 October. Given the commitment to an OBR forecast and the timing of party conferences, we will have to wait a few months to find out more about Labour’s tax plans beyond the initial publication of some draft legislation and technical tax documents on 29 July.
We were pleased to be asked to attend a roundtable meeting on 24 July with James Murray MP Exchequer Secretary to the Treasury (XST), to discuss how the tax system can support growth. The XST now has responsibility for HMRC, so it was a good opportunity to highlight our priorities for action.
Let us know your views
We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and issues raised by members are discussed. We welcome input from members to inform our work; email tax@icas.com to share your insights and feedback.
