Labour’s tax threat

Should Sir Keir Starmer find himself installed in 10 Downing Street following the election, his insistence that Labour will not bring in tax rises for “working people” will be sorely tested.

Analysis from the Institute for Fiscal Studies has indicated that public spending is likely to be £80 billion higher in real terms by the end of the decade than it was prior to the pandemic, with health and defence putting particular pressure on the exchequer to find additional funding.

This should not come as a surprise to anyone. The combined forces of demography and a more dangerous world have been such that even the Conservative Party, with its ideological predisposition towards a small state, has been forced to increase taxes in recent years, covering in part for the effects of the Covid pandemic and the war in Ukraine.

If further rises in taxation are to be avoided in the coming decade, these spending pressures will need to be met with significant reforms to public services, improving the efficiency with which the Government converts spending into outputs.

This is territory to which the Labour party, and its cosy relationship with the civil service and unions, is particularly ill-suited. It seems all but inevitable that no matter the protestations to the contrary, Sir Keir and his shadow chancellor Rachel Reeves will find that their plans involve a significant rise in the tax burden.

Several tax rises have already been announced by Sir Keir and Ms Reeves, including on private schools, non-doms, private equity and energy companies, and it is notable that the party’s denials to date have focused on avoiding increases in VAT, income tax and National Insurance.

Even taking Sir Keir at his word – ignoring his long history of U-turns – there is room within his preferred formulation for significant increases in taxation of property and other assets. With a Labour government potentially just weeks away, the public deserves clarity about its true plans.