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The Guardian - UK
The Guardian - UK
Politics
Anna Isaac City editor

Labour drafts options for wealth taxes to ‘unlock’ funds for public services

Keir Starmer, sitting next to Rachel Reeves, gestures while talking to people
Keir Starmer and Rachel Reeves on the campaign trail. The party has denied it is considering further tax changes. Photograph: Sam Frost/The Guardian

The Labour party has been drawing up options for how it could raise money through extra wealth taxes to help rebuild Britain’s public services if it wins the general election, according to sources who have spoken to the Guardian.

The proposals under consideration include increases in capital gains tax (CGT), first revealed by the Guardian two weeks ago, that could raise £8bn.

Another option under discussion could lead to significant changes to inheritance tax. The measure would make it more difficult to “gift” money and assets, such as farmland, tax free. Together with CGT increases it could raise up to £10bn in revenue, according to one document seen by the Guardian.

A senior Labour source said: “We are starting from ground zero with our public services and infrastructure. We have to show we are serious about borrowing and raising revenue from taxes if investors are going to walk in step with us. These measures are part of unlocking wealth and putting it to work.”

A second senior party source said: “We have to show we are credible when it comes to transforming the country. Fiscal credibility means reforming tax as well as prudent borrowing.”

Before making any decisions, Labour intends to present a range of options to the Office for Budget Responsibility (OBR) for analysis, after gathering costings on individual measures from HM Revenue and Customs (HMRC).

Labour has been under pressure to explain how it will fund its plans for government, and sources admit there is frustration among some senior members of the party about the cautious approach it has taken during the election campaign.

So far, Labour has said it will not raise income tax, national insurance or VAT – and it has ruled out applying CGT to primary residences. It denied that it has arrived at any final decisions over any other measures.

A Labour spokesperson said: “Keir and Rachel have made clear that our priority is growing the economy, not increasing taxes. We have set out fully costed, fully funded plans, with very specific tax loopholes we would close. Nothing in our plans requires any additional tax to be increased.”

In an interview with the Guardian this week, the shadow chancellor denied there were any plans for new revenue-raising in a budget due this autumn. Rachel Reeves said she was focusing on efforts to drive growth rather than “tinkering around with taxes”.

However, sources have made clear that work is already under way to scope new ways of raising money if Keir Starmer becomes the prime minister.

They said a series of draft documents and expert analyses had been worked on throughout the election campaign and circulated among senior officials and shadow ministers.

One Labour memo, seen by the Guardian, was a briefing note that estimated increases to rates of CGT alone could generate £8bn for the Treasury in the long term.

There are also proposals to overhaul inheritance tax, with plans for a consultation that could launch in autumn. These could include radical changes, such as scrapping or updating the rules on agricultural land and business relief.

HMRC could be instructed to prepare figures on a range of options next month, sources said. They would then go to the OBR, which would need 10 weeks to crunch the numbers and share its findings with the Treasury.

The preparatory work suggests a budget could come in early October, as soon as party conferences are complete.

Under the current CGT regime, profits from the sales of second homes or shares in businesses are taxed at a much lower rate than wages.

Some senior figures believe that being more open about plans to raise wealth taxes to transform public services would improve turnout among traditional Labour voters.

The tax options under consideration come amid growing criticism from experts about a “conspiracy of silence” over how the two main parties will afford to fund public services.

The Institute for Fiscal Studies (IFS) said Labour and the Conservatives had not been clear about how they planned to address the “very tight fiscal situation” facing the next government.

The inheritance tax option being looked at involves changes in the rules for the tax on agricultural land and other family businesses, which industry experts regard as “very significant”.

At present, a person can claim up to 100% relief on the inheritance of agricultural land if it is being actively farmed. That has led to concerns that farmland is being snapped up by wealthy people keen to avoid inheritance taxes, and this is driving up prices and shutting out small businesses and farmers.

Some in Labour want to scrap this as well as business relief, which allows a person to pass on a company or shares if it is unlisted with 100% tax relief.

Plans being considered contain a sliding scale of options to weigh up the likely gain for the exchequer, including capping the benefit from agricultural and business relief at £500,000 for each person, rather than scrapping it. In some instances, both forms of relief could be claimed, allowing for a cap of £1m for each person in effect.

This would still raise about £2.3bn by 2029-30, which would be at the end of the OBR’s forecast period if it was introduced in March next year, according to a paper published by the IFS in 2023. The same figure appears in one of the internal Labour documents seen by the Guardian.

Sources said wider changes were also being considered on gifts and inheritance tax. Currently, no inheritance tax is due on gifts if they are made by a person who lives for more than seven years after the gifts are made.

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