The wealth tax isn't coming, but Labour has other daft plans to take your money
Tax revenues have dipped below expectations due to poor economic growth, wealthy taxpayers are leaving the country and people are changing their spending and investment patterns. Its failure to make the savings it planned means it has to borrow more, but its year of governing has pushed the cost of borrowing up, too.
Many on the left of the party saw an opportunity to pressure Rachel Reeves and have lobbied for a so-called 'wealth tax'. But now that Labour has more or less backed off the idea, what else do they have in store for us?
A wealth tax was always a non-starter simply because it is so administratively complex it could not have been introduced before the next election. This would have meant yet more people leaving the UK, taking their wealth with them. Some property markets would see values fall, in turn damaging their potential to create tax revenues. The effect on the economy would be significant.
No surprise then that Jonathan Reynolds, Business and Trade Secretary, has ruled out a wealth tax, describing it as 'daft' (which it obviously is) and saying that those demanding one should 'get serious' – meaning it will be left to Jeremy Corbyn's new party to campaign on.
But taxation is not the departmental responsibility of Reynolds, so why then can't Reeves make a clear statement?
Allowing the speculation to linger looks like a clear attempt to foster a deliberate and irresponsible distraction – that can only mean Labour Treasury ministers are working on other tax plans.
To understand what Labour is likely to be planning it is best to examine proposals which have the support of CenTax, the Institute for Fiscal Studies (IFS) and Labour-supporting tax enthusiast Dan Neidle, of Tax Policy Associates, who says 'it makes much more sense to tighten existing taxes, such as capital gains tax and inheritance tax'.
It was these groups, led by CenTax, which were successful in persuading Labour to adopt its disastrous assault on non-doms and Reeves's extension of inheritance tax to family firms and farms. The far Left agenda surfacing from them now is focused on raising capital gains tax. But the capital gains tax rises that have already taken place have, as predicted in these pages by many authors, resulted in significant lost revenue.
Capital gains tax receipts fell 18pc to £12.1bn in 2023-24 on the year before, even as the annual tax-free allowance was halved from £12,300 to £6,000.
Capital gains tax receipts in 2024-25 dropped a further 10pc.
If the high-tax zealots do persuade Labour to increase capital gains tax to income tax levels, we can expect a much sharper fall in these receipts. Currently, nobody thinks Labour will be re-elected, meaning everyone would just hold on to assets (equities, properties, etc) for the four or so years Labour remains in power, causing revenues to dry up.
CenTax and the other high tax enthusiasts want to charge capital gains tax on all assets at death, but that would result in a tax rate on death of over 54pc. The high death tax rate is the main reason non-doms and entrepreneurs are fleeing Britain. To make it even more punitive would be a significant act of national self-harm.
Another idea being mooted is an 'exit tax', an exceptionally foolish idea. Look at what's happening in Norway, where a new exit tax is destroying the country's tech sector – tech firms can no longer attract international talent and capital.
London-based Stani Kulechov, of major tech firm Avara, says: 'Every Norwegian tech entrepreneur I know is leaving or has already left.'
France once had an exit tax but the negative effect on investment caused it to more or less scrap the policy. The French version came with a 15-year rule – those who left France would be taxed on certain shares or profits unless they kept them for 15 years. In 2018, the French government relaxed this limit to two years, making the tax largely voluntary.
The Labour Government must learn from its own experience and from other countries that raising taxes does not always mean higher tax revenues.
Ironically it was Dan Neidle who recently said: 'If you tax savings and investment, you get less of it. Less from people in the UK, less from people who leave the UK and less from foreigners. The consequence is a drop in growth.'
For once Neidle is right, but is he a stopped clock or has he gone through a Damascene conversion to the low tax cause? Whatever it is, Reeves should look to reduce capital gains tax, allowing people to cash in on unwanted assets and generate revenues she badly needs.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Finextra
23 minutes ago
- Finextra
Fraudster convicted in £1.3m Ponzi scheme following FCA investigation
Daniel Pugh has been found guilty of fraud, following a prosecution by the FCA. 0 This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author. Mr Pugh, aged 35 and of Devon, set up a Ponzi scheme that netted over £1m. Through his fraudulent Imperial Investment Fund (IIF), Mr Pugh took money from 238 investors he targeted largely through Facebook adverts. They were offered impossibly high returns of 1.4% a day, 7% a week or 350% a year. The FCA will commence confiscation proceedings in order to recover the proceeds of crime. Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: 'Mr Pugh deliberately defrauded unsuspecting investors. Fighting financial crime is a priority for the FCA and we are committed to holding fraudsters to account.' Mr Pugh was today found guilty of one count of conspiracy to defraud. At the start of the trial he pleaded guilty to carrying out unauthorised regulated activity which breached sections 19 and 21 of the Financial Services and Markets Act 2000. A further individual remains wanted in relation to the same offences.
The Independent
23 minutes ago
- The Independent
College endowment tax is leading to hiring freezes and could mean cuts in financial aid
A big increase in the tax on university endowments is adding to financial uncertainty for the wealthiest colleges in the U.S., leading several already to lay off staff or implement hiring freezes. Spending more endowment money on taxes could also lead colleges to reduce financial aid, cutting off access to elite institutions for lower-income students, colleges and industry experts have warned. President Donald Trump signed the tax increase into law last month as part of his signature spending bill. The new tax rates take effect in 2026, but colleges such as Harvard, Yale and Stanford already are citing the tax as one of many reasons for making cuts across their universities. Each will be on the hook to pay hundreds of millions more in taxes, while also navigating reductions in research grants and other threats to funding by the Trump administration. A tax on college endowments was introduced during Trump's first administration, collecting 1.4% of wealthy universities' investment earnings. The law signed by Trump last month creates a new tiered system that taxes the richest schools at the highest rates. The new tax will charge an 8% rate at schools with $2 million or more in assets for each enrolled student. Schools with $750,000 to $2 million will be charged 4%, and schools with $500,000 to $750,000 will continue to be charged the 1.4% rate. The tax applies only to private colleges and universities with at least 3,000 students, up from the previous cutoff of 500 students. 'The tax now will really solely apply to private research universities,' said Steven Bloom, assistant vice president of government relations for the American Council on Education. 'It's going to mean that these schools are going to have to spend more money under the tax, taking it away from what they primarily use their endowment assets for — financial aid.' This small group of wealthy colleges faces a tax increase The law will increase the endowment tax for about a dozen universities, according to an Associated Press analysis of data from the National Association of College and University Business Officers. Harvard, Yale, Stanford, Princeton and the Massachusetts Institute of Technology are expected to pay the 8% rate next year. The schools facing the 4% rate include Notre Dame, Dartmouth College, Rice University, University of Pennsylvania, Washington University in St. Louis and Vanderbilt University. Some universities are on the edge of the law's parameters. Both Duke and Emory, for instance, were shy of the $750,000-per-student endowment threshold based on last fiscal year. Endowments are made up of donations to the college, which are invested to maintain the money over time. Colleges often spend about 5% of their investment earnings every year to put toward their budgets. Much of it goes toward scholarships for students, along with costs such as research or endowed faculty positions. Despite the colleges' wealth, the tax will drastically impact their budgets, said Phillip Levine, an economist and professor at Wellesley College. 'They're looking for savings wherever possible,' Levine said, which could impact financial aid. ' One of the most important things they do with their endowment is lower the cost of education for lower- and middle-income students. The institutions paying the highest tax are also the ones charging these students the least amount of money to attend.' For example, at Rice University in Houston, officials anticipate the college will need to pay $6.4 million more in taxes. That equates to more than 100 student financial aid packages, the university said, but Rice officials will explore all other options to avoid cutting that support. How colleges are adjusting to financial pressures In the meantime, some universities are going forward with staff cuts. Yale University says it will have to pay an estimated $280 million in total endowment taxes, citing the tax in a campus message implementing a hiring freeze. Stanford University announced plans to reduce its operating budget by $140 million this upcoming school year, which included 363 layoffs and an ongoing hiring freeze. The university spent months trying to determine where to reduce its budget, but said it would continue to support undergraduate financial aid and funding for Ph.D. students. Research universities are under increasing financial pressure from reductions in funding from the National Institutes of Health, the National Science Foundation and other federal agencies. No university knows this pressure better than Harvard, the country's wealthiest college. Its $53 billion endowment puts it at the top of the list for the new tax, but it's also seeing massive portions of research funding under threat in its ongoing battle with the White House. The federal government has frozen $2.6 billion in Harvard's research grants in connection with civil rights investigations focused on antisemitism and Harvard's efforts to promote diversity on campus. But the impact of other administration policies on the university could approach $1 billion annually, Harvard said in a statement. 'It's not like Harvard is going to go from one of the best institutions in the world to just a mediocre institution. That's probably not going to happen," Levine said. 'But that doesn't mean it's not going to be a bad thing — that there won't be pain and that students won't suffer.' ___ Mumphrey reported from Phoenix. Associated Press writer Sharon Lurye in Philadelphia contributed to this report. ___ The Associated Press' education coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP's standards for working with philanthropies, a list of supporters and funded coverage areas at
The Independent
23 minutes ago
- The Independent
‘The fairest way' or a ‘political disaster'? Readers split on whether Reeves should raise income tax
Independent readers are sharply divided over whether Keir Starmer and Rachel Reeves should raise income tax to help fill the £50bn shortfall in the public finances this autumn. Some see it as the fairest option, targeting those most able to pay. 'A penny or two on the rates of income tax might just work wonders,' said one, while others argued it is long past time to align capital gains with income tax rates or reform property taxes. Opponents warn that raising income tax could damage growth and hand political advantage to Reform leader Nigel Farage. 'A rise in income tax across the board would be a political disaster for Labour,' cautioned another. Some prefer alternatives such as VAT, targeted wealth taxes, or cutting waste before hiking any taxes. Several also pressed for bold investment in green infrastructure and small businesses, but all agreed the government must find a credible way to fund public services. Here's what you had the say: What choice does she have? Really, what choice does she have? It is hardly surprising the economy is so sluggish and she has gaps to plug from the effects of a disastrous Brexit (it was: really), a pandemic, and a clueless previous administration, who, to be fair to them, also had limited choices. Among the solutions is to slaughter the sacred cow of putting up income tax. A penny or two on the rates of income tax might just work wonders and could be the fairest way of generating revenue from those best able to contribute towards the public good. DIRKCUTLASS Those with the broadest shoulders As always, the disabled are blamed as the culprits upsetting Reeves' books. The welfare climbdown can only be attributed to £5bn when Reeves' calculations are in the region of £50bn. She and Starmer need to come clean and articulate the hangover of Covid furlough, problems caused by Ukraine and Trump, and put up taxes across the board – such as freezing allowances, increasing income tax and national insurance, equalising capital gains tax with income tax and making it liable for NI, reforming council tax on high-value properties. Starmer and Reeves need to be making sure those with the broadest shoulders bear their fair share of the burden. Kernow What do you think – should Rachel Reeves raise income tax, or find the money elsewhere? Share your thoughts in the comments below. VAT is the better option Why income tax? VAT is the much better option as it is a consumption tax. It is easy to adjust for – you raise the tax-free threshold for the poorest in society to compensate. It doesn't affect business significantly. As it taxes consumption, this encourages saving and investment. Kwame Tax unearned income Tax unearned income in line with income tax brackets. This would be worth £16 billion a year. Stop subsidising private companies completely. Apply a void tax to all properties empty for more than six months. Introduce a system whereby renovations etc. are exempt. Some savings ideas – centralise all NHS procurement and HR. Have a locum register for nurses and stop using expensive agencies (same salaries for temp nurses, though). Slightly Tipsy Max Align capital gains tax with income tax Since the wealthy get most of their income from gains, why not align capital gains tax rates to income tax rates, as is done in Australia? That would bring in around £8 billion a year. In addition, replacing council tax and stamp duty with a French-style proportional property tax could generate an additional £3bn–£4bn per year, with even more potential under a land value tax framework. There's plenty of scope for a chancellor and a prime minister who aren't afraid of their own shadows. Pomerol95 Cut waste before raising taxes Still no sign of any reduction in government wasted expenditure – now in the billions each month. No use Starmer looking serious about income tax rises. He refuses to act to curb expenditure or legislate for change! SPCK Political disaster for Labour A rise in income tax across the board would be a political disaster for Labour. Farage would walk into No. 10 on the ticket of 'never believe Labour's promises'. fastyellosaab No changes to basic rate expected The last UK Chancellor to increase the basic rate of income tax was Denis Healey back in 1975. Do not expect any changes to the rate, even though it would actually be the fairest way to raise revenue. Expect tinkering with allowances and other tax measures, which are easier to 'sell' politically. Blackkbeard's host People fear job loss more than a tax rise Really? Does anyone worry like that – that their income tax might go up by 1 per cent or they may have to pay a bit more for petrol? That's not what keeps people awake at night when there are so many worse possibilities, like being made redundant and having no income at all, which could happen to most of us at any time. Chrisw27 Commitment to growth needed Sorry, but what does stabilising the economy mean? Jobs, SMEs, house prices are falling like there's no tomorrow. Extra taxes are not going to make things better. We need a government committed to growth – massive projects to get us a green new economy that will create jobs and prosperity. Support for SMEs to grow faster. Conversations about big hard issues like how do we pay for the NHS in a world of an ageing population, and where the care is going to come from. Instead, we have a continuation of business as usual. I challenge myself to see one policy that is different to what we would have if Rishi were in power. I struggle. Boring75 Taxes rises should have been in the manifesto Good news – there should have been tax rises in the manifesto. You can't have good public services run on fresh air and, after fourteen years of Tory rundown – particularly of the NHS – there is much repairing to do, given that Tory taxes were almost all paid to their mates rather than into public services. Evidence? Just look at the state of the water service and supply 'industry'. Let's see it brought back into public control. rEUjoin High taxes in the 1970s In the 1970s, Labour raised income tax to 83 per cent for top earners; the rest paid 33 per cent or more. Bin men went on strike (like Birmingham today). Doctors wanted more pay. Train drivers struck. Does this start to sound familiar? Karl Hurting the poorest Just like raising employers' NIC was obviously going to impact the poorer working person, so will raising VAT. Wealthier people can afford to pay more; poorer people can't – and it matters not if you take more of their wages or make them pay more for their goods, the result is the same to the poor. Pen2030 Tinkering won't fix deep problems Starmer and Reeves think tweaking things here and there – a few extra billion in taxes, a few billion less in welfare spending – will sort the finances and the UK economy. No. The problems run deep and require more positive actions than Starmer and Reeves are willing to take. So the UK economy will continue to stagnate. More and more voters will lose faith and look elsewhere. ChrisMatthews Why does Starmer not encourage a government efficiency (oxymoron, I know) drive – cutting waste in all departments? Sell off unused government land or buildings. Try to look at other ways of filling holes, PM, before making another U-turn on a promise not to raise taxes. All the other tax increases in place since Labour took over to fill the black hole – where's that increased income gone? Face it, the UK government hasn't got a clue. Chuckiethebrave Want to share your views? Simply register your details below. Once registered, you can comment on the day's top stories for a chance to be featured. Alternatively, click 'log in' or 'register' in the top right corner to sign in or sign up.
