Here’s how Labour will inflict even more tax misery

When Britain’s two main political parties seem so often to be playing the same mood music about personal and business taxes, is it really possible that Labour could increase the tax burden further? The answer, very simply, is yes. Here’s how.

Over the past year we have seen Sir Keir Starmer’s Labour Party play a rather coy game on tax.

Instead of taking the predictable route of approving every Conservative tax increase it has, on occasion, attacked them, such as Rishi Sunak’s increase in National Insurance and introduction of a health and social care levy.

Just to confuse the Labour stereotype further, it has also on occasions supported some tax cuts such as Jeremy Hunt’s recent National Insurance cuts.

While the Labour leadership has sought to throw red meat to its most vociferous supporters on issues such as punitive taxes on oil and gas production or punishing non-dom tax status, it has sought to reassure ordinary taxpayers they have nothing to fear and might even be treated more favourably.

Yet the reality is a potential Starmer administration will inherit far poorer public finances than Blair and Brown did and have less room for manoeuvre.

Labour will need to find new sources of tax to fund its social programmes. A good predictor of what Labour will do is to consider proposals from Labouraligned think tanks and supporters and gauge its response.

Labour’s favourite think tank, the Resolution Foundation, is pushing for a 300pc increase in the National Insurance rate on all self-employed taxpayers earning more than £50,270. The hike to 8pc would form part of a combined tax rate of 53pc – and Labour has not repudiated the proposal.

Other options it promotes include raising capital gains tax (CGT) on shares to 37pc and on other assets to as much as 53pc; charging CGT on death and on leaving the UK; and hiking the basic rate of dividend tax from 8.75pc to 20pc.

Such measures would be enough to bring most transactions to a grinding halt, kill capital market investment and our stock markets too.

Large investors would leave the UK (before the measure was brought in) and few would start new businesses. Further ideas include attacking the private rental market by charging National Insurance (NI) on rental income (at a rate of 20pc for basic rate taxpayers).

Pensions are also a target: taxing pensions more by extending employer NI to also cover employers’ contributions to pensions and cutting the £270,000 cap on tax- free pension withdrawals to £40,000 or even zero.

VAT is not forgotten – slashing the VAT registration threshold for businesses from £85,000 to £30,000 to make more transactions liable for VAT. This would load a heavy administrative burden on tiny businesses, greatly reducing the number able to grow.

While a business with an £85,000 turnover can just about handle VAT, it will be too much for many smaller ones. As always, motorists are a vulnerable target. One proposal is to introduce a per-mile “road duty” system for electric vehicles, repeal the 5p cut in fuel duty and increase it annually again by at least 2pc with higher vehicle excise duty for heavier cars.

Finally, for those who think inheritance tax (IHT) is meant only for the wealthy, the Resolution Foundation suggests abolishing the nil-rate inheritance tax band, making everyone subject to IHT, and scrapping business and agricultural property reliefs

The Resolution Foundation plan does involve a handful of tax cuts, (to stamp duty and reducing the 60pc income tax rate to 53pc) but these all have the look of sops to win some allies.

Starmer should be pinned down on such policies and unless there is a repudiation of a high tax idea it cannot be discounted. Even then, pleading “the mess we found after looking at the books” could be used to justify anything.

Unless taxes are cut, and cut in key areas significantly, the British ship of state is heading straight for a tidal wave of high public spending, higher taxes, high public debt and low to zero economic growth that will engulf it – and there will be many hands lost.

It’s not too late for either Labour or the Conservatives to change their high tax and spend approach – or for another party like Reform to provide a more appealing alternative.