Keir Starmer points a doom-laden warning to Britons that they’re going to be clobbered with new Labour taxes on Wednesday due to the ‘harsh fiscal actuality’

On Oct 28, 2024

By James Tapsfield, Political Editor For Mailonline

Published: 12:03, 28 October 2024 | Updated: 12:11, 28 October 2024

Keir Starmer today admitted there is ‘tough stuff’ coming in the Budget as the demanded Brits face up to ‘harsh reality’.

The PM used a speech this morning to lay the ground for Chancellor Rachel Reeves‘ extraordinary £35billion a year raid on Wednesday.

He appealed for voters to give Labour time to ‘rebuild the foundations’ despite the brutal assault on their pockets. In one specific announcement, he confirmed that the £2 cap on bus fares will rise to £3.

But despite the package looking set to be one of the biggest revenue-raisers on record, Sir Keir also refused to rule out the government coming back to milk more cash.

Critics have dismissed claims from ministers that ordinary ‘working people’ will not see the impact in payslips, because most of the pain will be initially targeted at businesses and the wealthier.

The Labour election manifesto used the term as it laid out who would be protected from increases.

But Sir Keir sparked fury last week by suggesting landlords, shareholders and savers did not count.

Education Secretary Bridget Phillipson struggled yesterday on whether small business owners making just £13,000 a year were ‘working people’.

And the premier said this morning that ‘the working people of this country know exactly who they are’, saying the government would operate in their ‘service’.

A major increase to employers’ national insurance contributions looks set to be the centrepiece of the big post-election package.

There are also expected to be attacks on inheritance tax, capital gains and pension pots.

Keir Starmer will today demand Brits face up to ‘harsh reality’ ahead of looming tax hikes in the Budget

The Chancellor’s package is expected to push the tax burden to a new high

In his speech in the West Midlands this morning, Sir Keir will say: ‘We have to be realistic about where we are as a country. This is not 1997, when the economy was decent but public services were on their knees.

‘And it’s not 2010, where public services were strong, but the public finances were weak. These are unprecedented circumstances.

‘And that’s before we even get to the long-term challenges ignored for 14 years: an economy riddled with weakness on productivity and investment, a state that needs urgent modernisation to face down the challenge of a volatile world.’

The PM will deny he is using the UK’s problems as ‘an excuse’, despite repeatedly putting the blame on the Tories.

‘Politics is always a choice. It’s time to choose a clear path, and embrace the harsh light of fiscal reality so we can come together behind a credible, long-term plan,’ he will say.

Chancellor of the Duchy of Lancaster Pat McFadden told Times Radio that the Government ‘levelled with people’ before the Budget.

‘There’s no point in telling people everything’s absolutely fine when the prison system is in a state of collapse, when NHS waiting lists are at a record high, when we’ve got crumbling schools,’ he said.

‘There’s so much that’s wrong that we’ve got to fix and it’s important to set that out honestly and candidly for the public.’

He added: ‘I think we’ll have the most honest Budget on Wednesday that we’ve had for some years.’

NICs is charged at different rates for employers, employees and the self-employed

Sir Keir and Rachel Reeves together at the Labour conference last year

What taxes will Labour hike?

VAT on private school fees and non-dom crackdown – likelihood 10/10

The Labour manifesto committed to scrapping non-dom status, adding VAT to private school fees and increasing stamp duty on buyers from abroad.

The party estimated the VAT move would bring in £1.5billion by 2028, while the other tweaks were projected to bring in billions more together with a vague squeeze on ‘tax avoidance’.

However, questions have been raised about the revenue predictions, with warnings that wealthy people will simply leave the country.

Employer national insurance – 9/10

Rachel Reeves looks almost certain to increase employer NICs, despite claims it is a ‘straightforward breach’ of the Labour manifesto.

The Chancellor now seems to be leaning towards hiking the main rate and lowering the threshold when it starts being paid, rather than imposing the levy on contributions made to pensions for the first time.

The measures could raise up to £20billion a year.

There had been alarm from Labour big beasts about a more direct raid on pension pots, with fears firms would be unable to compensate for the extra charges, and retirement funds would simply end up smaller.

Tax thresholds – 8/10

Tax thresholds have been frozen since 2021, and are due to stay so until 2028.

Jeremy Hunt also decided to reduce the top rate mark from £150,000 to £125,000.

The OBR has estimated that the policy will bring 3.8million more people into the tax system through ‘fiscal drag’ – where incomes rise to account for inflation but tax thresholds stay the same in cash terms.

Some 2.7million more are expected to pay the higher 40p rate, and 600,000 extra the 45p top rate.

The OBR projected that the Government’s tax revenues will be boosted by an enormous £41billion a year as a result.

However, there are claims that Ms Reeves is set to extend the freeze again. That would give her an additional £7billion in the final year of the fiscal forecast – when the books have to be balanced.

Capital gains – 8/10

Ms Reeves could hit profits on sales of shares and other assets, which currently face a 20 per cent levy – or 10 per cent when people sell businesses.

Labour appears to have backed off big moves on the headline rate, or second properties.

HMRC estimates that a one percentage point increase in the higher rate of capital gains tax would raise just £100million.

But a 10 percentage point increase or more – as has been mooted in some quarters – could actually cut revenue because so many investors would take action such as delaying sales or quitting the UK.

The IFS has suggested that attacking business asset disposal relief (BAD) – a preferential CGT rate for business owners – could bring in £1.5billion.

So-called ‘uplift at death’ could also be in the crosshairs. It means that assets such as businesses owned when someone dies are valued for tax purposes from the date when they were acquired, rather than at the date of death.

The asset is, however, inherited at current value. Getting rid of that benefit could bring in £1.6billion.

Inheritance tax – 7/10

IHT is charged at 40 per cent on estates worth over £325,000, but that level can rise to £1million for a couple passing property to children.

Abolishing that loophole could potentially raise £2billion a year.

Pension pots – 7/10

Think-tanks have floated cutting the amount people can draw out of pensions tax-free from £286,275 to £100,000.

Such a change would raise around £2billion a year.

It would affect about one in five retirees.

People could also be restricted from passing on pension pots to relatives.

Retirement savings are treated generously by the taxman when people die at present, especially if that is before age 75.

They have therefore become widely used in inheritance tax planning, and are often spent last if at all.

Options open to the Government include making pension assets liable for inheritance tax, and levying a charge on them at death.

Pension and tax experts predict a crackdown would lead to a rise in gifting, and perhaps greater use of trusts and insurance products.

Share dividends – 6/10

The dividend allowance means the first £500 received by an investor in a year is tax-free.

But Ms Reeves could opt to scrap that relief, arguing that investments held in an ISA or pension are tax-free anyway and ‘working people’ do not have the resources to contribute to both.

ISAs – 6/10

Some years ago Ms Reeves called for a £500,000 lifetime allowance on how much can be held tax-free in ISAs.

The Resolution Foundation has suggested the figure could be even lower at £100,000.

Ms Reeves has also hinted that the annual £20,000 ceiling on contributions is too high, as only the wealthier benefit.