The end of capital gains tax loophole for private equity investors, a rise in overseas buyer stamp duty and more funding for HMRC all feature in the Labour manifesto
Sir Keir Starmer launched the Labour manifesto in Manchester ruling out any rises to income tax, national insurance and VAT for households, stressing this was ‘a manifesto for wealth creation, a plan to change Britain because today we can turn the page, lay a new foundation of stability and rebuild Britian.
‘There is so much potential in this country if we stand together in these four nations.’
In terms of the big three taxes, the basic, higher rate and additional rates of income tax will not be increased.
The manifesto stressed: ‘Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT.’
As expected, private school fees will be liable to VAT and they will have to pay business rates to raise £1.5bn to pay for 6,500 extra teachers and more teacher training.
The change to private equity tax will see the closure of a loophole on carried interest, which would see the current rate of 28% in capital gains tax on private equity gains removed, so the effective tax rate could rise to up to 45% although details of how this will work were not set out in the manifesto.
Revenue from closing carried interest tax loophole would raise £565m, Labour stated in the costings.
Comparable rates on private equity investors in France, Italy and Germany are between 26% and 34%, while it is 20% in the US.
‘Private equity is the only industry where performance-related pay is treated as capital gains. Labour will close this loophole,’ said the manifesto.
For the overseas owners of UK property, Labour plans a 1% increase on the current higher rate of stamp duty land tax on purchases of residential property by non-UK residents to raise £40m. Currently non-resident buyers face a 2% surcharge on UK stamp duty rates.
In terms of non-doms, closure of non-dom tax loopholes will raise £5.2bn from closing further non-dom tax loopholes, likely to include the four-year limit currently outlined under the recent changes due to come in from April 2025, and is likely to include the removal of the inheritance tax breaks.
The manifesto stated: ‘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.’
On tax avoidance, Labour has earmarked £855m in funding for HMRC to crackdown on the tax gap.
‘We 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,’ according to Labour.
‘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.’
Starmer said: ‘This changed Labour party has a plan for growth – we are pro business and pro worker, the party of growth creation.’
Labour plans a single fiscal event a year instead of the current two events a year with a Budget and Autumn Statement, and will cap corporation tax at 25% but it will keep this under review if competitors lower tax rates, saying they would ‘act if tax changes in other countries pose a risk to UK competitiveness’.
It will also produce a business tax roadmap to give companies more certainty over future investment plans, will retain a permanent full expensing system for capital investment and the annual investment allowance for small business.
Labour will replace the business rates system with a new regime but said it would raise the same revenue but in a ‘fairer way’. There are no specific details, but the ‘new system will level the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship’.
In terms of investment, it will develop a 10-year infrastructure strategy, aligned with industrial strategy and regional development priorities, including improving rail connectivity across the north of England.
As trailed, the railways will be nationalised through the creation of Great British Railways, which Labour claimed would ‘deliver a unified system that focuses on reliable, affordable, high-quality, and efficient services; along with ensuring safety and accessibility. It will be responsible for investment, day-to-day operational delivery and innovations and improvements for passengers, working with publicly-owned rail operators in Wales and Scotland’.
For first time buyers, it plans to introduce a permanent mortgage guarantee scheme to support those buyers who struggle to save for a large deposit, with lower mortgage costs.
Parents and youngsters will benefit from free breakfast clubs in all primary schools.
Businesses can also expect to see major changes to employment law, apparently in the first 100 days of any new Labour government.
The changes to employment law can tagged as ‘Labour’s Plan to Make Work Pay: Delivering a New Deal for Working People’ with a manifesto pledge of ‘introducing legislation within 100 days. We will consult fully with businesses, workers, and civil society on how to put our plans into practice before legislation is passed’.
Leaving just over three months for full consultation and draft legislation to get through parliament over a summer recess could be a challenge but key measures including making flexible working the default from day one, ban one sided flexibility zero-hour contracts and day one rights for unfair dismissal, sick pay and paternity pay, among others.
The tax avoidance crackdown and non-dom changes will be used to cut NHS waiting times with 40,000 more appointments each week, during evenings and weekends.
The new Great British Energy, a publicly-owned clean power company will be funded by a windfall tax on oil and gas giants.
With the fallout from the huge levels of fraud during the pandemic, Labour will also appoint a fixed-term covid corruption commissioner and use every means possible to recoup public money lost in pandemic related fraud and from contracts which have not delivered.
