Hardline Labour

Reeves: no tax relief changes, no cash for Waspi

Rachel Reeves with Anas Sarwar addressing staff at NatWest/RBS head office in Edinburgh (pic: Terry Murden)

Rachel Reeves, the Shadow Chancellor, today said there would be “limited tax increases” to fund Labour’s spending commitments, with no change to relief on pensions, inheritance tax or share ownership.

She also effectively ruled out paying compensation to the Waspi campaigners who claim previous governments misinformed them about changes to the women’s state pension age.

Speaking to journalists alongside Scottish Labour leader Anas Sarwar at the head office of NatWest Group in Edinburgh, she said these tax increases would allow for an immediate cash injection into public services.

They include money raised in VAT and business rates on private school fees, the windfall tax to fund GB Energy and the Natlonal Wealth Fund, and cracking down on tax avoidance.

“These are the only tax increases that we need to fund our plans,” she said.

On changing tax reliefs, she said: “We don’t have any plans on taxation beyond those that I have already set out.”

Asked about the campaign led by the Women Against State Pensions Inequality (Waspi) who were promised compensation under Jeremy Corbyn’s leadership of the Labour party, Ms Reeves said: “I recognise that injustice.

“There are lots of things that a Labour government might like to do, but the state of the public finances and the dire need in our public services means that we won’t be able to do everything that we might like to do.

“Our manifesto will be published shortly, but I’ve said we won’t put forward anything that is not fully costed and fully-funded and I have not set out any money for this.”

Former Labour leader Jeremy Corbyn supported the Waspi campaigners (pic: Terry Murden)

On Rishi Sunak’s Triple Lock Plus proposal to provide some continued tax relief for state pensioners, she said Labour is committed to the Triple Lock and it is the Tories who have frozen allowances which means pensioners may have to start paying income tax.

Her comments came as Prime Minister Rishi Sunak used the first televised debate of the election campaign to claim that Labour will raise taxes by £2,000, a figure which Labour leader Sir Keir Starmer described as “absolute garbage”.

Mr Sunak insisted Labour would hit people’s pockets. “Beyond raising your taxes and raiding your pensions, no one knows what Labour would actually do,” he said.

Sir Keir said the Conservative government had raised taxes 26 times and accused Mr Sunak of being the “British expert on tax rises”. Labour later issued a list of claims made by Mr Sunak which is said were inaccurate.

In Edinburgh, Ms Reeves told the media that Labour had “no plans to deviate from the government’s plan” to sell off the remaining taxpayer-owned shares in NatWest, but fell short of committing to a Tell Sid retail offer which was postponed because of the general election.

In 2008 the government took an 84% stake in RBS, as it was at the time, to save it from collapse. After a series of sales the holding currently stands at 22.5%.

“My priority is getting value for money for the taxpayer,” said Ms Reeves, a former Bank of England economist. “We don’t want the public [taxpayers] to hold those shares for any longer than they need to.”

indy schools
Labour will impose VAT on private school fees

On the controversial move to impose VAT on private schools, she said many schools have said they would not pass on the full cost and the money raised would help meet a financial shortfall facing the state school system.

During a Q&A session with NatWest staff, she said it would be “the privilege of my life” to become the first female Chancellor and said she would fight to close the gender pay gap “once and for all”.

Labour would set up a Commissioner to recover money fraudulently claimed during the Covid pandemic.

“I am determined to get that money back,” she said.

On future relations with the Scottish government, she said Labour would not seek to pick fights with Holyrood and insisted that a Labour would seek to work in “partnership” with the SNP.

She added that “there’ll be no return to austerity” under Labour.

Her comments came as further questions were being asked among wealth management professionals about the parties’ tax plans.

Gary Smith, partner in financial planning at wealth management firm Evelyn Partners, said: “We haven’t seen the manifestos yet, and even when we do they might not contain much concrete detail on pensions, inheritance tax or the taxation of investments.

“So we are left in a world of probabilities, possibilities and suspicions around upcoming changes to the financial landscape that savers might have to navigate.  

“The fact that we are looking at a very probable change of government come 5 July throws up some urgent questions around what’s in store for pensions both state and private, or for families planning how pass on their wealth – but campaign rhetoric doesn’t provide many answers. We do know that change for savers is closer at hand than it was a fortnight ago.

“We’ve had the surprise “triple-lock plus” gambit from Rishi Sunak, and while he might not get the chance to put it into practice, it does reignite the state pension debate, as well as disquiet over frozen allowances for everyone. Unless Labour moves to match it, which seems unlikely, it opens up some clear water on policy.

Rishi Sunak
Rishi Sunak proposes a change to the triple lock on pensions (pic: Terry Murden)

“One elephant in the room is the prospect that a new Government might look to the taxation of pensions, or other wealth assets, to escape the fiscal restraints the main parties have imposed on themselves.”

The Institute for Fiscal Studies and the International Monetary Fund have warned that both parties’ public finance projections indicate a significant funding gap, of up to £30 billion, unless unscheduled spending cuts are enforced.

A recent poll revealed that 56%of British voters expect taxes to go up after the UK general election if Labour win, and 52% if the Tories remain in power. 

Labour has now promised not to hike VAT, which means both parties have pledged not to raise any of the three biggest levies – income tax and national insurance being the other two – that account for the lion’s share of Treasury revenues. Labour has also vowed not to raise the headline rate of corporation tax, the fourth biggest fundraiser. 

Mr Smith said: “A new government might look at the tax treatment of pensions or certain IHT reliefs to bridge a funding gap that seems bound to open up even if public sector spending is severely restricted. Savers, however, should be very wary of acting on such possibilities and it is highly unlikely any changes to the tax system would be enacted before April 2025.”

Rishi Sunak has said he would create an “age-related” tax-free personal allowance in the income tax system, which would rise to keep it above the rate of the state pension. This would mean two different personal allowances: one for working-age people that will be frozen until 2028 and another higher one for retirees that would change annually.  

“There are issues with this,” said Mr Smith, “apart from affordability and the potential to be generationally divisive. It’s not clear what sort of personal allowance would apply to those who continued to work after state pension age – and 1.37million people aged 65 and over were still in work last year. It would also add another level of complexity to the UK tax system. 

“It’s questionable whether the Conservatives would have tabled this policy if they had a good chance of remaining in power, but it does at least shine a light on how frozen thresholds are raising the tax burden by stealth. Promises from both parties not to raise headline tax rates offer little comfort when we all know we’re going to be paying more tax anyway due to fiscal drag. 

“One favour today’s workers can do for themselves is to assume the triple lock might not be sustainable for more than a decade, and that they need to save more than they think to make up for that.’ 

Mr Smith added: “While Jeremy Hunt’s abolition of the pensions lifetime allowance was widely welcomed, some of the details in the implementation have caused lingering uncertainty and confusion – as has Labour’s undertaking to reinstate it. 

Jeremy Hunt
Jeremy Hunt: plans a range of changes to pensions

‘We hope Labour will soon offer some more clarity on how and when it plans to reintroduce the LTA. If an LTA is reintroduced, the key questions will be at what level, and will there be some sort of carve-out for highly-paid NHS clinicians?

“It seems very unlikely a new LTA would be set back at its most recent £1.073 million – a level that landed doctors and surgeons with unwelcome tax charges, exacerbated staffing shortages in the NHS and led to Hunt’s decision to abolish the threshold. 

“Under the last Labour government, the LTA ended up at £1.8 million, which would now be worth over £2.5 million adjusted for inflation since. It wouldn’t be surprising if the LTA was reintroduced at something like the £2 million mark. 

“Either away, it is important to understand that the LTA has been removed from the statute book and so a future Government wishing to reintroduce it could not just switch it back on the day after the election but would have to pass new legislation which would likely take the form of a Finance Bill on the back of a Budget – and Shadow Chancellor Rachel Reeves has ruled out a summer Budget.”

The Conservatives have said they would not introduce any new taxes on pensions or increase existing ones for the whole of the next Parliament. They would maintain the 25% tax-free lump sum and tax relief on pension contributions at the marginal rate of income tax. National Insurance would not be extended to employer pension contributions. 

pension pot
Some wealth managers expect changes to people’s savings income

Mr Smith said: “We have no indication of any such plans from Labour but no such assurances either. In spite or because of this, the taxation of pensions is inevitably drawing some speculation, not just over the reintroduction of the LTA, but other areas where a future government could look to raise revenue. 

“Labour objected to Jeremy Hunt’s pension taxation reforms at the 2023 Budget as “a tax gift to the wealthy”, so the increase of the annual allowance from £40,000 to £60,000 cannot be considered untouchable. The annual allowance is arguably an easier and more efficient way to cap the amount spent on pension tax relief than the LTA, so some sort of reversal of the AA increase is not unthinkable, whether it comes alongside or instead of a new LTA.

“Another way to limit the Treasury spend on pension tax benefits would be to reduce or do away with the 25 per cent pension commencement lump sum, or to limit tax relief on pension contributions. Either measure would be controversial, and the latter would be an administrative challenge, so they are perhaps unlikely, at least early on in a new government’s parliament.” 

On inheritance tax, Mr Smith added: “Labour have made it clear they think some inheritance tax exemptions and allowances are too generous, so it’s possible some sort of measures will be taken to reduce them if they gain power.

“While the IHT-exempt status of defined contribution (or money purchase) pension pots has not been mentioned by Labour, it has been highlighted more than once by think-tanks as an anomaly, so it might well be on Rachel Reeves’ radar.” 

Another major talking point on IHT is around business and agricultural property reliefs, with a think-tank this week highlighting how they help some large estates shelter assets from IHT, and questioning the potential eligibility of most AIM shares for business relief.

“There are legitimate reasons behind business and agricultural IHT reliefs, which help family and rural business to remain intact and going concerns on the death of owner, thereby savings jobs and assets of community value,” said Mr Smith.

“Objections to the inclusion of AIM shares miss this point, and even a drive to remove AIM shares from Business Relief must take into account that it’s there to encourage private investment in small British firms that is sadly in short supply in the UK economy at the moment.”

See also:

Next Chancellor faces challenge of weak growth

3 Comments to Reeves: no tax relief changes, no cash for Waspi

  1. Rishi Sunak got out of that big problem and i won’t be voting for Labour. Thousands of older women will not either.

  2. With regard to the WASPI issue, the Public and Health Service Ombudsman’s Principles for Remedy say that “finite resources should not be used as an excuse for failing to provide a fair remedy.”

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