Labour should outflank the Conservatives by lowering business and capital taxes - Brian Monteith

Seasoned observers all know the sign of when Labour believes victory is within sight is when it announces it will not raise taxes.

Last week we reached that seminal moment with shadow chancellor Rachel Reeves and later Scottish leader Anas Sarwar both making statements ruling out Labour becoming known for raising taxes if put in power at Westminster or Holyrood.

Labour does not want to repeat the experience of 1992 by throwing away an expected win. Back then it was the proposed “Double Whammy” of increases in tax and inflationary policies that received much of the blame for Neil Kinnock’s second general election defeat.

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What many readers may not be aware of is that over the last year there has been sustained lobbying of the Labour leadership to introduce a series of tax increases on accrued wealth, rather than regular earnings.

Such was the lack of any Labour voices urging caution over wealth taxes – that other countries have been abandoning because they did not work – that there was every reason to expect Keir Starmer would succumb to the mood music emanating from tax experts and leftist economists – not to mention a legion of social activists proclaiming ever-higher taxes as normal. Yet when a decision was made Rachel Reeves instead made a commitment Labour will not introduce a wealth or mansion tax, nor increase capital gains tax or raise the top rates of income tax.

“We have no plans for a wealth tax,” Reeves stated, and when challenged that “no plans” was simply making a non-denial denial she retorted she was being explicit, emphasising, “We won't be doing that. It's a denial.”

Then, following on from the Scottish Conservative leader Douglas Ross launching an economic policy on Wednesday where he placed improving Scotland’s growth as his party’s top economic policy, with no more than an ambition for tax cuts, Labour Leader Anas Sarwar also joined in the growing chorus against high taxes and in favour of economic growth.

Distancing himself from the SNP, Sarwar claimed higher Scottish income tax levels are "hammering" families already facing a cost-of-living crisis and wanted it known his party had a "presumption against any increases to income tax".

Is Labour just making these statements to try and get elected? It would be easy enough to think so but the perceptions of the electorate are crucial and it is not enough to offer what might be popular policies on taxes and spending if there is no reputation behind it for economic competence.

More than anything Labour wants to win office – and then build on that. Its leadership recognises that thanks to Rishi Sunak’s Conservatives raising taxes to their highest point in seventy years and presided over the highest inflation many young voters have ever known – a real rather than imaginary double whammy – has shredded the old Tory claim of economic competence and low taxes.

This is important to older voters, who are especially concerned about financial matters, but also to young voters looking to build a career, get on the property ladder and start families. I think it key that by the time the general election comes next year there will likely be no voters under thirty-two who have known anything other than Conservative prime ministers in Ten Downing Street.

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It’s easy to forget the last Labour government actually cut corporation tax and income tax, as well as slashing capital gains tax. It was the stealth taxes on the likes of petrol and not indexing various tax thresholds eventually raised the hackles of voters. Its tax record wasn’t perfect – we had Gordon Brown’s infamous tax raid on pensions, but it was broadly pro-growth.

The best way for Reeves to show her statements are not just underhand attempts to gain votes is to set out a coherent tax policy as soon as possible. So what should a pro-growth, pro-investment Labour tax policy look like? These are some of the general principles that could establish a desire for competence that would deliver sustainable economic growth.

Firstly, to announce it will become law that all personal taxes threshold will in future automatically be indexed to inflation so taxes are fully transparent and subject to honest rather than deceitful dealing.

Secondly, a priority will be given in the first years of government to encouraging business dynamism, growing the economy so that receipts rise, allowing public services to be improved and personal taxes to be lowered.

Thirdly, that taxes on the use of capital that slow the economy down and work against investment will be lowered. Time and again, both in the UK and abroad, when Capital Gains Tax and Stamp Duties are cut economic activity rises considerably and the revenues more than make up for the imagined cost. The reason for this is simple, people sit on their property or investments when such taxes are high and then look to realise those assets when the taxes are cut – fearing (probably correctly) they only have a limited time before another politician will come along and raise them again.

As ambitions to float, Reeves could suggest making full expensing for corporation tax permanent and go on to reverse the Conservative increases to Corporation Tax – while cutting CGT back to Blair/Brown levels and introduce a zero rate for long-term gains.

The UK has the third highest combined taxes on corporate income in Europe. Just putting us at the European average would attract more investment.

Reeves says Labour will do “whatever it takes” for Britain to attract investment. This attitude should underlie Labour tax policy – but, like I said last week on the Scottish Conservative economic policy, without more detail there’s a credibility gap. And we are always being told to “mind the gap”… Now’s the time for labour to close it.

Brian Monteith is a former member of the Scottish and European Parliaments and a Senior Adviser to the Tax Reform Council



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