Sir Keir Starmer‘s expected hikes to capital gains tax and inheritance tax and a possible raid on pensions have sent savers into a frenzy as they fear they may have to sell shares and property to avoid losing cash.
The Prime Minister gave a doom-laden speech in Downing Street‘s rose garden yesterday in which he said the country must accept ‘short-term pain’ for ‘long-term good’ – delivered in front of a lectern labelled ‘fixing the foundations’.
He warned that the autumn budget, to be delivered by new Chancellor Rachel Reeves, would be ‘painful’, adding that ‘those with the broadest shoulders should bear the heavier burden’ – having earlier pledged to avoid hiking taxes.
In the minutes after he gave the speech, wealth managers are reported to have received phone calls from panicked clients, with Middle England savers thought to be ready to sell off shares and properties to avoid the hikes.
Shadow chief secretary to the Treasury Laura Trott has hit out at the gloomy speech, which is thought to have been made to cushion the inevitable bad news to come.
Prime Minister Keir Starmer gives his inheritance speech in the garden of 10 Downing Street on August 27
She said: ‘Starmer’s speech has made it clear. Ruinous tax rises, which he’s always planned, are on the way.
‘Pensions, investments, homes – nothing will be safe. And, when introduced, he will have broken his election promise to the British people.’
There are concerns that, as Labour has pledged not to raise income tax, national insurance or VAT, it will find other ways to plug what it claims is a £22billion black hole in public finances by targeting capital gains and inheritance tax.
The government could, for instance, hike capital gains tax to be on the level with income tax – with the higher rate pegged at 45 per cent rather than the current rate of 20 per cent.
In comments reported by the Telegraph, Ms Trott added: ‘Increasing tax is a political choice. One (Sir Keir) has chosen to make so he can afford inflation-busting payouts to his union paymasters.’
The paper reported that the speech was set to be made earlier than Tuesday – but had been delayed following the election by the riots that shamed Britain in the wake of the Southport stabbings.
And financial planners said they had received calls and emails from clients who were worried about capital gains tax on their properties and investments. Labour did not commit to freezing CGT, though Sir Keir has ruled out charging the levy on first homes. It only applies to second homes and buy-to-let properties.
The PM made it clear there would be bad news on the way in the budget despite insisting Labour would not raise income tax, national insurance or VAT
The new Labour government’s first budget will be delivered in the autumn by chancellor Rachel Reeves
Shadow chief secretary to the Treasury Laura Trott has attacked Sir Keir’s hinted hikes, saying: ‘Increasing tax is a political choice’
She has accused Labour of planning tax hikes to ‘afford inflation busting payouts to union paymasters’ but even Unite (pictured) has expressed concern at the ‘bleak’ speech
Kemi Badenoch (pictured arriving at Downing Street in March) has accused Mr Starmer of taking the British public for fools
Andy Butcher, of wealth manager Raymond James, said: ‘We’ve had lots of inquiries about how to minimise capital gains tax – and whether it’s worth realising gains now and paying capital gains tax ahead of the Budget.’
Others reported horror stories of savers liquidating their pensions in the immediate aftermath of the speech, fearing the Labour government was on the verge of making retirement pots subject to inheritance tax.
But government-authorised analysis published last week actually suggests a hike to CGT may actually cost the Treasury more in the long run.
Official estimates published by HM Revenue & Customs show that a 10 percentage point increase in the higher rate of CGT would lose the Treasury £2bn in 2027-28 because investors would find ways to avoid the additional charge.
Exactly how Labour will plug its claimed £22bn black hole without taxing what it calls ‘working people’ remains to be seen.
Unite general secretary Sharon Graham marches through Cheltenham against laws restricting the right to strike on January 27
Robert Jenrick MP speaks during the launch of his bid to become the next Conservative Party Leader on August 2
Official HMRC analysis actually suggests any hike to capital gains tax would cost the Treasury more as investors find ways to duck the tax
Paul Johnson, of the Institute for Fiscal Studies think tank, said direct taxes on people with average wages were ‘the lowest they’ve been in 50 years’.
He told BBC News: ‘Trying to significantly increase taxes without impacting that group of people will be very complex and potentially have some negative economic consequences.’
Last night Sir Keir was accused of ‘breaking his promise’ after repeatedly vowing not to raise levies on working people during the General Election campaign.
But his claims of a ‘dire’ inheritance from the Tory administration have come as his ministers caved into trade union demands for inflation-busting pay deals.
Last night Tory leadership contender Kemi Badenoch said: ‘Keir Starmer is taking the British public for fools, but his dishonest analysis won’t wash. He campaigned on promises he couldn’t deliver and now he is being found out.
‘They are prioritising the demands of their trade union paymasters over investment in public services. But, like all Labour governments, they will eventually run out of money – paving the way for a tax raid on the middle classes.’
Her rival Robert Jenrick said: ‘Sir Keir Starmer is not taking long to show his true colours. Fifty-three days after entering Downing Street on a ‘read my lips: no new taxes’ message, he is already planning to break his promise and raise taxes on middle-class Brits.’
And shadow home secretary James Cleverly, also in the running, accused Sir Keir of ‘rolling out dishonest policies’.
He said: ‘More meaningless drivel from Keir Starmer today as he tries to distract from his latest cronyism row.
‘He says he wants to serve people; all he is serving them are tax rises.
‘The Conservatives left Labour with low inflation, falling migration, and the highest growth in the G7.
‘Yet the Labour government have waged war on pensioners, caved to their union paymasters and splurged millions of pounds of taxpayers’ money on unaffordable pay rises for strikers.
‘Keir Starmer was elected on a manifesto that he won’t stick to, and he is now rolling out a series of dishonest policies for which he has no democratic mandate.’
Even union bosses were shocked by Sir Keir’s gloomy message during his first major speech – dubbed a ‘state of the nation’ address – since entering Downing Street.
Unite general secretary Sharon Graham said: ‘We need change. A bleak vision of Britain is not what we need now. It is time to see the change that Labour promised.’
Referencing Labour’s unpopular decision to strip ten million pensioners of their winter fuel payments, she warned: ‘We should not pit pensioners against workers. That is not a choice that should be on the table.’
Sir Keir told those gathered in the No10 rose garden: ‘Just as when I responded to the riots, I’ll have to turn to the country and make big asks of you as well, to accept short-term pain for long-term good, the difficult trade-off for the genuine solution.
‘Frankly – things will get worse before they get better.’
Sir Keir Starmer has been accused of plotting a tax raid on the middle classes after he admitted that the looming Budget will be ‘painful’
Shadow home secretary James Cleverly has accused Labour of ‘rolling out dishonest policies’
Asked to ‘level with people’ about what taxes he could raise, Sir Keir insisted there would be no hikes to income tax, VAT or national insurance.
He added: ‘I was clear [about those taxes] before the election. I’ll be clear again after the election.’
However it has sparked speculation about which levies could be increased instead when Chancellor Rachel Reeves delivers her first Budget on October 30.
Laura Suter, of investment platform AJ Bell, said the PM’s comments added ‘fuel to rumours around increases to capital gains tax and inheritance tax’.
Howard Cox, founder of campaign group FairFuelUK, said: ‘I have credible intelligence that the Treasury has virtually settled… on increasing fuel duty by 10p a litre.
‘I predict the net outcome from the October Budget is that the UK’s 37million drivers are set to be fleeced on a scale not seen since 1997 to 2010 when Labour increased fuel duty by a staggering 46 per cent.’
Sir Keir insisted that ‘things are worse than we ever imagined’ and that the Office for Budget Responsibility watchdog did not know about the £22billion ‘black hole’. He added: ‘That’s not performative – that’s fact.’
But Paul Johnson, of the Institute for Fiscal Studies think-tank, later said it was ‘not really a fair statement’.
He told Times Radio: ‘We always knew that if we’re going to avoid cuts, they would have to raise taxes or work to very different public finance rules to the ones that they’ve set out.’
Former work and pensions secretary Mel Stride said: ‘Keir Starmer’s speech is an attempt to justify all his broken promises. This was always Labour’s plan – say what they needed to get elected, then go back on their words and blame the previous government.’
A Treasury spokesperson previously told MailOnline: ‘Following the spending audit, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and address the £22 billion hole in the public finances left by the last government.
‘Decisions on how to do that will be taken at the Budget in the round.’