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rabbit in magicians hat | accountingweb | Labour’s Tax Plans

Labour’s tax plans lack the necessary vim


Labour has published its business tax plan leaving Philip Fisher to wonder where the money for much-needed investment will come from – unless they can pull that rabbit out of the hat.

13th Feb 2024
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As the general election approaches, we are learning more about what the Labour Party might do on the tax front if it is elected into office.

It is hard to get excited about Labour’s tax plans, since they are currently in a state of flux and are tending towards very limited change.

One thing is becoming increasingly certain. Radical ideas, such as taxing the rich to pay for ambitious plans, have been quietly replaced by “fiscal responsibility”, in other words behaving like hyper-prudent accountants – and who would want them running the country?

This caution was recently demonstrated when the party announced a U-turn on its pledge to invest £28bn a year on green projects designed to boost the economy at the same time as protecting the planet.

As a result, there is great uncertainty on both sides of the political divide, given that Jeremy Hunt, having pledged to invest £20m on tax-cutting measures at next month’s Budget, appears to have gone into his own U-turn.

Tax plans published

On 1 February, in connection with its sold-out business conference, the opposition party published Labour’s Business Partnership for Growth. This gives us a few more inklings into the leadership’s current intentions which, rather than appealing to its traditional power base, seems rather conservative.

Three of its eight pages are blank but the others include a two-page message from Sir Keir Starmer, which includes some bold phrases talking of “political and economic turmoil” meaning that “Britain must regain its reputation for economic stability, integrity and certainty”, “the idea of Securonomics”, “certainty of economic and tax decisions being taken carefully and with the long term in mind” and “government acting differently”.

Indeed, this “government needs to become more entrepreneurial, de-risking markets and unashamedly backing key growth sectors”.

This must then be put into the context of Labour’s five-point plan for growth. This comprises:

  1. putting economic stability first
  2. backing British business
  3. getting Britain building again
  4. kickstarting a skills revolution
  5. growth everywhere and making work pay.

What does this mean in terms of tax measures?

Predictably, given the politicking of late, there will be “ironclad fiscal rules and a fiscal lock”.

Protection for business

In addition, corporation tax will be capped at 25% for the next Parliament. This protection for business will be accompanied by a commitment to retain full expensing – a 100% initial allowance for asset acquisitions, although details of exactly what this will (and may not) cover are yet to be shared.

There will also be just one Budget each year, held in the autumn at least four months before the start of the new tax year. This should guarantee stability and help accountants and their clients to plan ahead.

Going into slightly more detail, Labour promises stable research and development (R&D) tax credits and presumably plans to attack widespread abuses of this system.

Healthy outlook

Those running accountancy practices might also be encouraged to hear that there will be 2m more NHS treatments and 8,500 more mental health professionals, which should help to reduce staff absence and widen the availability of workers in what is still a very tight job market.

While it may be less likely to hit our profession, there is also a commitment to a new deal for working people, delivering a genuine living wage, banning exploitative zero-hours contracts and ending fire and rehire.

There is also a plan to reform the generally ineffective apprenticeship levy as a more flexible growth and skills levy.

The only new revenue-raising measure is a proposal revealed by Starmer and Rachel Reeves in a press conference. Accompanying the U-turn is a plan to increase the rate of the oil and gas windfall tax. Rather than 75%, this will be increased to the rate in Norway of 78% and the charge will be extended to the end of the next Parliament.

Slim pickings

To date, Labour’s fiscal framework has been thin to say the least. Applying VAT to school fees and removing or limiting the non-dom tax perks is neither wildly exciting nor very lucrative.

For the most part, the party has been keen to commit to policies already in place rather than attempting to boost UK plc’s coffers significantly or re-balancing the tax burden, as one might naturally expect from a party that has deep socialist roots.

Much-needed investment

Time will tell but it is likely that current plans will be significantly refined over the coming months and even more so if Labour gets into office. In tandem, one must expect Rishi Sunak and Jeremy Hunt to develop their own tax strategies should the Conservatives return to office for years 15 to 19.

Since neither party seems to show any enthusiasm for tax rises, the big question for the next Parliament will be where money is going to come from to provide much-needed investment after over a decade of austerity. It is all very well for both the Conservatives and Labour to talk about growth in woolly terms but unless they can pull that rabbit out of the hat, a big black fiscal hole awaits.

Replies (16)

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By Justin Bryant
13th Feb 2024 14:22

This "rabbit out of a hat" cliché metaphor is used at every opportunity before Budgets etc. and the "devil is in the detail" cliché is always cited around Budget time or soon after. "Keeping one's cards close to one's chest" is another one. Also, "Budget bingo" is a newfangled cliché . Perhaps we should play Budget cliché bingo?

I'm sure if I Googled "Budget chancellor rabbit out of hat" there would be millions of hits.

Thanks (1)
Replying to Justin Bryant:
By Amy Chin
13th Feb 2024 14:55

Justin, if you'd like to offer our readers the benefit of your extensive lexicon my inbox is always open :-)

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Replying to Amy Chin:
By Justin Bryant
13th Feb 2024 15:08

It's just a bit of jest (re all Budget etc. commentators) and I note I was right about Google above.

I expect we can also look forward to some 14.2.24 tax clichés tomorrow.

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Replying to Justin Bryant:
By FactChecker
13th Feb 2024 15:26

Is it safe for me to point out that the only bit of news in the above that I found encouraging was that "Three of (the) eight pages are blank" in Labour’s Business Partnership for Growth booklet.

This suggests a mix of candour ('don't know what to say here') with an openness to flexibility ('maybe the reader could give us some ideas').
Perhaps not ideal qualities in leadership, but nevertheless concepts to which HMRC might like to pay attention and even learn from?

Thanks (3)
Replying to FactChecker:
By Justin Bryant
13th Feb 2024 15:43

Labour will simply have the same lack of money problems as the current Government, if not worse (in fact, probably a lot worse if they do all the usual dumb left-wing things that the likes of DN and RM are encouraging). It's that simple.

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Replying to Justin Bryant:
By justsotax
19th Feb 2024 17:08

Ah I remember an accountingweb article circa 2015 how labour would lead to people paying higher taxes.....bloody lefties, thank god these lot got least they only started taxing dividends a bit, restricting mortgage interest, introducing child benefit clawback.....much prefer these right wingers....they are about the people not the power

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Replying to Justin Bryant:
By Knight Rider
20th Feb 2024 17:33

They won't. They're going to raid our pensions.

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Should Be Working ... not playing with the car
By should_be_working
13th Feb 2024 15:06

"neither party seems to show any enthusiasm for tax rises"

Of course, though that means they'll still put them up, just 'reluctantly' and ideally with some political cover like a pandemic or war or "oh dear, we've just had a proper look at the books the last lot left and, unfortunately..."

Thanks (4)
By Knight Rider
13th Feb 2024 15:55

Labour will raid our pensions just like last time.
They'll be pushing on an open door and raise billions. Options include:
1. Bringing DC pots into inheritance tax
2. A levy on pension pots, contributions or both
3. Reducing tax relief on contributions
4. Nationalising final salary schemes

Thanks (2)
Replying to Knight Rider:
paddle steamer
13th Feb 2024 16:54

Cannot see direct raids, too high profile and impacts too many of their own voters.

However 1 is possible, cannot see 2, 3 is possible, not sure how you nationalise final salary schemes at 4, particularly as vast numbers are state run and are not funded.

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Replying to DJKL:
By Knight Rider
14th Feb 2024 16:21

The Royal mail scheme is a template for 4. Final salary schemes are running surpluses now and Labour will be seeing golden gooses rather than the poison pills that acquirers were seeing a few years ago. Lets take BP. Closed to new members and a squabble developing over pension increases. The Government steps in. UKGI acquires the assets, spends the surplus and acquires government debt with the rest. Who's going to complain ? Not the pensioners whose pensions are now guaranteed. Not BP who have shed an albatross. Not the employees with historic rights. Just a bit more off balance sheet finance for the next government to worry about.

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By philaccountant
14th Feb 2024 09:58

It's funny, I remember in 2008 when the bankers crashed the global economy by turning the mortgage market (and every other market) into a casino, that the government magically found £375,000,000,000 on their computer overnight to pump into that sector.

Nobody went to prison for it and we never got the money back, but the world didn't end and we all just carried on our merry way.

Yet now when we're facing on the one hand a potential extinction level event and on the other our crumbling public infrastructure disintegrating into nothing, we can't find any money at all.

I know it's 16 years old now, but maybe somebody in the BoE could dig out that computer, fire it up and see if it would provide a tiny fraction of the money that we found to save the banking system. Actually, they don't need to, as they pulled the same trick when Truss crashed the economy and pension funds a couple of years ago.

That printing press always seems to work when the right sort of people need it to work.

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Replying to philaccountant:
paddle steamer
15th Feb 2024 13:34

You do know they recovered a lot of the support/loans etc they made, they have already sold into the market various lots of Royal Bank (Nat West) equity they took up and have fairly recently announced they are to get rid of the rest. They also made profits on some of the bailouts.

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By matchmade
14th Feb 2024 11:14

I suspect Jeremy Hunt was hoping to cut taxes by a little more than £20m. (see above the heading "Tax plans published")

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By stanbu
14th Feb 2024 12:16

Never mind tax rises or cuts, I want whichever government to stop spending our money on the size of the Civil Service, vanity projects, and niche areas. They should remember that government is there to do for us those things that we cannot do easily for ourselves such as the military, police, judiciary etc
Just because they can pass new laws doesn't mean that they have to do it.
It is all so frustrating!

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Replying to stanbu:
By spilly
15th Feb 2024 23:04

Maybe if civil service jobs were seen to be under threat of cuts, we might see staff start to do their jobs properly and seriously again, rather than the buck-passing culture that has emerged in the last few years.
And how come MOD staff numbers don’t ever decrease despite the armed services shrinking?

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