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Keir Starmer, leader of the Labour Party, delivers a keynote speech at Lansing Parish Hall in West Sussex whilst on the general election campaign trail.
Keir Starmer_flickr

Labour lines up new tax measures after landslide victory

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After Labour secured its largest ever majority, Sir Keir Starmer and Rachel Reeves – the first female Chancellor – will now turn their attention towards making changes to several tax measures.

5th Jul 2024
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Labour has secured a landslide victory in the general election, with Sir Keir Starmer’s government set to usher in a handful of new tax measures.

The party ran a campaign promising change and after securing its largest ever majority, it now has the opportunity to do so, starting with Rachel Reeves becoming the first female Chancellor. Her predecessor Jeremy Hunt, meanwhile, narrowly avoided becoming the first Chancellor to lose their seat after winning an 891 majority.

There were some notable casualties on the night, with the likes of Liz Truss, Jacob Rees-Mogg, Grant Shapps and Penny Mordaunt all losing their seats, with accountancy candidates facing a near wipeout.

However, the focus will now turn to the tax challenges that await in the new Chancellor’s in tray.

Door open for tax increases

Labour had risked handcuffing itself a little by promising no rises in national insurance, income tax or VAT – although Nimesh Shah, CEO of Blick Rothenberg, recently told the No Accounting for Taste podcast (listen below) that would have been the case had either of the two main parties won.

“The door opener, I suppose, for Keir Starmer and Rachel Reeves is that they do refer to no tax increases for working people and we don’t really know what that means,” he said.

“Keir Starmer talks about people who have to work and graft very hard, and those that cannot simply write a check when times get hard. I’m not sure that quite gives a clear definition of what working people may be, and I’m sure we’ll soon find out, but I think it does leave the door open for potential tax increases on higher earners.”

In his column for AccountingWEB, Philip Fisher noted that the manifesto promised to “ensure taxes on working people are kept as low as possible” having been cornered by Jeremy Hunt.

“As critics have pointed out, this theoretically leaves scope to tinker with capital gains tax and council tax,” added Fisher. “Cynics may also wonder whether this area of the manifesto might eventually give way to financial necessity before the end of the next parliament?”

VAT on private schools

A headline-making policy is imposing the standard rate of 20% VAT on private schools, the rollout of which would “not be straightforward”, warned Jason Croke.

“The Institute of Fiscal Studies (IFS) indicates charging VAT on private schools would generate revenue of £1.6bn per year,” he added. “It may not seem like a great deal but cumulatively over future years, the revenue raised could help build towards the overall pot of tax.”

However, he added that many private schools are small and often faith-based.

“Not all private schools are as famous or as wealthy as Eton.”

Shah recognised that the proposal had “caused quite a lot of concern with middle England; those families that have scrimped and saved to send their children to private school” but added that he doesn’t expect there to be a “huge displacement of lots of children, despite what the horror stories may suggest”.

With Labour having since delayed the introduction of the measure until September 2025, Shah suggests that’s a “bit of a watering down”.

“Again, I do wonder whether they're just trying to play it safe and come up with some options around what this may look like. In my view, it doesn't raise very much – £1.5bn in the grand scheme of things is not going to pay for many free breakfast clubs or school meals - and are there better revenue raising measures out there?”

Modern scheme

Elsewhere, Labour committed to replacing non-dom status with “a modern scheme for people genuinely in the country for a short period”. As part of this process, the use of offshore trusts to avoid IHT will end, said Fisher.

Shah noted that over the last couple of months, non-doms have been “very concerned about the direction of travel around the abolishment” of the regime.

“They're very worried about the inheritance tax exposure, the implication on trusts as well, some of which could be very, very costly and difficult to unwind, and the uncertainty that both the Conservatives and Labour have caused non-doms.”

However, Shah wondered if Labour has “heard some of that noise from the non-dom community and think that this might be an opportunity” to review the Conservative proposals – which, he added, were “done very haphazardly” and looked like they could have been “cobbled together in the last 10 days before the Spring Budget”.

“So I would hope that Rachel Reeves, who I've got a lot of time for – a sensible economist who talks very sensibly as well – might pause and also take consultation from people like ourselves on what a world-class regime could look like, because there is a one-off opportunity here to create something that would attract the right wealth and investment into the UK at a time when it is desperate for investment, especially in this sort of public infrastructure as well.”

HMRC investment

Tax avoidance was also under the spotlight in Labour’s manifesto, with the party stressing that it will “modernise HMRC and change the law to tackle tax avoidance”.

“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.”

It’s been no secret that HMRC has been in dire need of investment, having come under heavy criticism in recent years for long waiting times and poor standards of service.

As such, Shah recognised that taxpayers and advisers alike would be happy about the measure but stressed that the “proof ” will be in what actually happens noting that the proposed £850m investment “doesn't scratch the surface”.

“There's a real issue with HMRC, I think, culturally and it requires a complete overhaul,” he said, added that the department hasn’t “kept up with the complexity of the tax system”.

“So a project like Making Tax Digital, where you must have to put in millions and millions of pounds to try and modernise the IT infrastructure for HMRC to keep up with the current, modern-day system – I just don’t think they can do that.

“Hopefully, Rachel Reeves will maybe take a pause on introducing even more legislation and more complexity, and get HMRC upgraded to where it really needs to be because a big part of our tax gap is actually non-compliance through innocent error and ignorance - people just cannot get the right information in order to pay the right amount of tax.”

Taking a step back

While Sir Keir Starmer now has the keys to Number 10, how soon are we likely to see the changes that’ve been promised? Not right away.

“I would hope that we take a step back in that post-election period,” said Shah, with Reeves having also confirmed that there would be no emergency Budget.

“Ideally, I’d like to see nothing in that first Budget other than to set the scene about where the country currently is in terms of its finances and the areas of consideration, and then have proper stakeholder consultation around all areas of taxation.

“Please do take input from the very nerdy professionals that exist and are very passionate about policy and driving change within our tax agenda because that only makes for a better business environment, which helps all of us.”

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Replies (40)

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By Justin Bryant
05th Jul 2024 09:07

Many UK millionaires have made up their minds.
https://www.cnbc.com/2024/06/18/millionaires-are-abandoning-the-uk-in-th...

Under the SRT they will of course not have to "leave", as they can likely spend up to 90 midnights a year here and remain non-UK resident pretty easily. So one wonders who will pay all this tax that's needed, as this exodus of money sure won't help UK GDP. I guess it will be lower level millionaires who cannot afford offshore homes (or where that's not convenient) and the richer ones who can, yet are happy to pay more tax anyway.

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Replying to Justin Bryant:
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By OrmeGoat
05th Jul 2024 09:30

And the rest of us!

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Replying to OrmeGoat:
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By AdamJones82
05th Jul 2024 13:46

Ah, one of those who mouth off they are going to leave but don't

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Replying to OrmeGoat:
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By FactChecker
05th Jul 2024 20:25

The economic impact is unlikely (based on historical evidence) to be predominantly due to the decisions of a relatively few (however wealthy) people.

There IS a very real degree to which the attitudes/fears of such people matter ... but that tends to be seen in the more medium-term changes to the investments over which they have control (not houses/cars/jewellery but the location & scale of new businesses/factories/etc).

In the meantime it'll be the way in which you and I ('the general public') react with our paltry finances that changes fastest. More inclined to spend than to save? More looking after number 1 or gifting to next generation? More spend on consumables/experiences or on 'assets' with a hoped-for shelflife? And so on?

Econometricians know this, but don't bang on about it too much - partly because it's politicians & the wealthy who pay for their output, but mostly because they've never managed to capture the drivers motivating the great unwashed in any remotely accurate algorithms!

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Replying to Justin Bryant:
Stepurhan
By stepurhan
05th Jul 2024 10:47

So what?

They weren't paying their fair share in the first place. They are going to continue not paying their fair share. In all honesty, if they aren't to contribute to the UK, the less time they spend here the better.

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Replying to stepurhan:
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By RetiredTax
05th Jul 2024 11:17

+1

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Replying to stepurhan:
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By DavidWinter
05th Jul 2024 15:11

Exactly, same goes for companies who siphon profits elsewhere. It might hurt in the short term but make them pay or go. People were perfectly prepared for short term hurt to get our 'freedom' from europe, I heard that all the time, but are upset at the impact of upsetting big foreign companies? The market will fill the gaps with actual taxpayers eventually, if the demand for the goods is there, and it is - that is after all how a free market is supposed to function.

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Replying to Justin Bryant:
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By Justin Bryant
05th Jul 2024 15:27

I note this other tax lawyer agrees with me re simple SRT offshoring planning:

"As a result, advice for those clients at the moment is largely focusing on the application of the statutory residence test, considering their options for alternative destination jurisdictions"

https://www.taxjournal.com/articles/one-minute-with-sara-morgan-

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By PAULLEWISFCCA
05th Jul 2024 09:33

see the jones plantation film re voting

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By johnjenkins
05th Jul 2024 09:39

Labour have said that they would make sure HMRC got the money necessary to function properly.
Now they could either invest more millions in MTD, which will cause much concern and maybe even demonstrations amongst the self-employed earning under £90k or they could spend the millions on modernising their IT capabilities (so that they talk to each other) and more investigators to reduce the "tax gap". I'm hoping Raquel has the proverbials to actually completely overhaul HMRC. She only has to ask us and the job will be done.

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By roger.meyts
08th Jul 2024 11:54

Raquel?

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By PAULLEWISFCCA
05th Jul 2024 09:44

once a society allows fake corrupt money - everything else follows - did the new leader not prosecute the infamous childrens tv presenter

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Replying to PAULLEWISFCCA:
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By cathygrimmer
05th Jul 2024 09:56

No

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Replying to PAULLEWISFCCA:
By Nick Graves
05th Jul 2024 11:27

PAULLEWISFCCA wrote:

once a society allows fake corrupt money - everything else follows - did the new leader not prosecute the infamous childrens tv presenter

Well, I suppose hastening the inevitable collapse gets it over n' done with.

Always look on the bright side of life.

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Replying to Nick Graves:
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By PAULLEWISFCCA
05th Jul 2024 13:50

yes it should become more obvious to the masses

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Replying to PAULLEWISFCCA:
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By DavidWinter
05th Jul 2024 15:03

The whole thing about Mr Fixit and Starmer was tin foil hat, dark corners of the web claptrap fabricated purely to smear. Says a lot more about the people peddling it, or indeed believing it, than Starmer.

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Replying to DavidWinter:
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By PAULLEWISFCCA
09th Jul 2024 12:06

of course - keep voting to choose a different slave master

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By Farrfalina
05th Jul 2024 09:48

One way of raising taxes and not increasing the burden on UK residents, would be to tax those among us who choose to live in Monaco or the Caribbean, and if they choose not to pay they loose their British Citizenship, many other countries do this (incl USA) why don’t we?
Through my chosen sport I know 10 tax exiles, and this is before we talk about the likes of Mone, Branson, Green, Radcliffe etc. Most of whom still have income earned in the UK.
Why do we subsidise them?

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Replying to Farrfalina:
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By Truthsayer
05th Jul 2024 10:07

lose, not loose.

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Replying to Truthsayer:
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By Farrfalina
05th Jul 2024 13:27

Thanks for the spelling lesson, hopefully the more important thing to you is my message

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Replying to Truthsayer:
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By Paul Crowley
05th Jul 2024 15:08

Pointless
Edits after 30 mins have not been allowed for years now.
Grammar [***] is not a good look when it is quite clear to all readers what was meant.

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By TB93
05th Jul 2024 10:58

It's funny how 34% of votes is considered a landslide...

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Replying to TB93:
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By johnjenkins
05th Jul 2024 11:18

FPTP not PR

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Replying to TB93:
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By JamesDS
05th Jul 2024 11:49

Was it not 34% of electorate rather than votes cast? Turnout was about 60%.

If 40% of the electorate are happy to stand by and watch the rest of the voters choose, then their opinions and any statistics attached to them are surely entirely irrelevant.

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Replying to JamesDS:
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By Wiganer Elaine
05th Jul 2024 12:06

I believe it is 34% of votes cast on a turnout of 51%.

However, that was about 6am this morning so could have changed!

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Replying to JamesDS:
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By Paul Crowley
05th Jul 2024 15:12

No of votes are irrelevant in the current election process.

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Replying to TB93:
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By Paul Crowley
05th Jul 2024 15:10

It was not a voting landslide to Labour. They scored the same as last time against opposition that no longer had viable players.

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By johnjenkins
05th Jul 2024 15:23

So let's get Boris back so he can look at Angela's legs from the other side of the House. (The point I am making is that the Tories need people with umph if they want to take back control).

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Replying to TB93:
By ireallyshouldknowthisbut
05th Jul 2024 16:43

TB93 wrote:

It's funny how 34% of votes is considered a landslide...

The vote for labour was only marginally up on the last election, albeit there was a hell of lot of strategic voting going on to boot out Tories. I went Lib Dem to oust our useless Brexit backing Johnson buddy.

What i find funny is the racist party essentially dismantled the Cons when they spent most of the couple of years being as racist as possible. Had the racists voted Con as usual, then it would have been a lot tighter.

Anyhow I am looking forward to hopefully 5 years before i have to write about a new chancellor in my budget round robin. Reeves has time to sort out a real mess of a tax system which has been high on politics, low on pragmitisim for too long. Boring and stable will go a long way to improving the economy and putting down the basis for investment.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
05th Jul 2024 18:55

You use the word racist a lot. Are you absolutely certain that you do not need to add fascist as well?

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Replying to ireallyshouldknowthisbut:
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By farrcorfe
05th Jul 2024 19:52

You wish! More regulation, more compliance, more fines (oops, sorry, penalties). I cannot comment on my local failed con candidate (for legal reasons) but then this is not a political forum (it's not, is it?)

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By justsotax
08th Jul 2024 15:11

sounds like you don't understand the electoral system that we have had forever and a day.....

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Tornado
By Tornado
05th Jul 2024 16:11

"(The point I am making is that the Tories need people with umph if they want to take back control)"

Like Nigel perhaps. Out of the blue his brand new party gets 600,000 more votes than the Liberal Democrats, a party that has been around for decades, but only gets 4 seats.

It will be interesting to see exactly what changes the Labour Party will make but they will need to get the Civil Service well under control first in order to implement their policies, so good luck to them with that.

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Replying to Tornado:
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By johnjenkins
09th Jul 2024 09:21

Sir Kier has said a couple of times now that he will put country first and party second. That is a very tall order and if he succeeds he will be PM a very long time.

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By Tim 59
05th Jul 2024 17:00

Labour are looking for at least two terms, a rush to introduce vindictive or punitive taxes immediately would reduce their shelf life to one term. They only got 34% of the vote.
Merely threatening a hike in CGT rates will prompt many to realise gains during this tax year. Selling off second homes and buy to let properties and taking pension lump sums could raise significant tax revenue without actually changing rates and increase the supply of property to the market. Once the higher rates are introduced the sales of investments would cease up.

Council tax based on property values would essentially transfer funds from the south (liberal, reform, conservative areas ) to the regions. I can see the attraction.

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By GrayMan
06th Jul 2024 08:02

With all the weeping, wailing and gnashing of teeth over VAT on school fees because some are special schools for disabled children, will these not be exempt in the same way as wheelchairs and riser chairs are exempt? When the dust settles, how many salesmen and directors of VAT-registered companies drive vans instead of estate cars or cars so the company can claim the VAT back?

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Replying to GrayMan:
the sea otter
By memyself-eye
08th Jul 2024 11:18

Estate cars?
Haven't made those since the Ford Cortina Mk1 estate of the 1960's!

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Replying to memyself-eye:
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By roger.meyts
08th Jul 2024 11:58

Volvo still make estate cars (V90, V60)

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Replying to roger.meyts:
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By johnjenkins
09th Jul 2024 09:18

I have a V60. Magic car (estate).

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Replying to johnjenkins:
paddle steamer
By DJKL
09th Jul 2024 11:57

But does the V60 take a large wardrobe with room to spare for the family ?

I sort of like Volvos but as virtually all the cars we hired in Sweden were Volvos they eventually started to bore me- same, same, same, inside- bland.

My favourite estate ever was my 1991 Mercedes 300, fast but pretty spacious taking 7 at a pinch, maybe not as wardrobe carrying as the early higher roof Volvos but then I am not an antique dealer.

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