Labour’s difficult start will look even worse by November - Brian Monteith

Keir Starmer’s Labour Government has not enjoyed the easiest of starts.

Now, with a Budget planned for the day before Halloween, the spectre of the Chancellor’s scythe laying waste to benefits and spending could haunt Labour well into the future.

Having won a huge majority on less than 34 per cent of the general election vote, it did not take long before the announcement by Rachel Reeves of the ending of the Winter Fuel Allowance to a huge section of pensioners knocked the smile of labour supporters.

While her opponents were smirking at her unexpected revelation they too were no longer laughing when she admitted it was her intention to increase taxes after all – despite having spent the whole general election campaign saying she had no plans to do so.

It’s all part of the wholly confected narrative that the public finances are worse than she was led to believe by officials, despite the availability in the public domain of all the spending estimates and independent research bodies such as the IFS and the Government’s own OBR making clear what spending was planned and costed.

Now we have two and a half months to consider what Reeves might do before we finally learn what Labour’s real intentions were all along. Some people are, unsurprisingly, not hanging around to find out.

Fearsome of what might happen to the Capital Gains Tax, Inheritance Tax and Council tax, to name just three of Reeve’s likely targets, owners of properties and other assets are making adjustments to their tax liabilities while the current rates of tax remain unchanged.

By issuing non denial denials, such as “we have no plans to…” or simply not answering questions at all, Labour has managed to encourage fevered speculation about how much the Chancellor will hike Capital Gains Tax.

This from a party which said economic stability was its key goal and whose spokesmen and women promised to deliver, "the most pro-growth, pro-business Treasury in our history." Aye, right!

Substantial anecdotal evidence suggests that presently investors are selling assets prematurely or doing deals now, because they are frightened of Halloween tax hikes. We shall find it that’s true by the statistics on CGT revenue collection during the period in the run-up to the Budget.

If Rachel Reeves was genuinely supportive of stability and investment she would commit not to increase CGT but rather fix it at or below the 18 per cent European average. It's not as if hiking CGT will raise significant revenue. Indeed HMRC thinks it would lose billions.

Yet increasing CGT – which is what many of the new advisors to the Chancellor are on record as supporting – would simply increase the cost of capital, reduce investment and thus further hamper productivity growth.

So why won't Reeves rule it out? My guess is because taxing wealth is an ideologically driven goal to feed the base of Labour supporters, irrespective of what it does for the economy.

Some advisers do actually believe it will increase revenues that can be showered on all sorts of Labour spending for the benefit of its voting demographic. History says different; indeed the best revenues have come when CGT rates have been low as that means people are more likely to dispose of taxable assets rather than hang on to them.

More disposals at low rates bring greater revenues than fewer disposals at high rates – owners of assets such as properties just sit on them (maybe renovating them instead) or keep their equities and other assets until a rainy day tells them they must sell. It will further depress already falling UK equity values.

It’s no way to raise government revenues.

Then there is the concern that in England Labour plans to change council tax bands to introduce a new wealth tax on property.

Asked during the election whether Labour would make any changes to council tax bands, Shadow Minister Jonathan Ashworth told Times Radio: “No, we’re not changing council tax bands.” To emphasise the position, Rachel Reeves told Sky during the election: "No, we're not planning to reform council tax."

Yet the speculation persists, built on the ease with which the doubling and tripling of second home Council Tax has been introduced – often by Tory Councils. It’s an open goal Labour surely can’t resist after conceding it will break its promises on tax rises.

This will no doubt be picked up by the SNP in Scotland, but even if well-known tax-hiker John Swinney refuses to adopt the policy, Scottish Labour leader Anas Sarwar will no doubt introduce it if he takes power following the 2026 Holyrood elections. So let’s not gloat.

Another change coming down the tracks is the HMRC's daft new plan to force the self-employed and those with property income to waste their time filing tax return forms four times a year.

A bureaucrat’s scheme the previous faux-conservative administration had naively approved and that Labour will follow through on, “Making Tax Digital” for income tax self-assessment, will be introduced in April 2026. A recent survey found people affected by the change are simply not ready for it.

Individuals have been able to voluntarily sign up for Making Tax Digital since April 2024, but data obtained from HMRC via FOI reveals that of the 12 million registered for self-assessment just 35 individuals have so far registered for the scheme.

It is a disaster waiting to happen, and it will be on Labour’s watch. Whoever is the new Tory leader will have denounced the plan long before it is introduced making the ownership for the unpopularity firmly with Labour.

So while the net popularity ratings of Keir Starmer and Rachel Reeves are already falling – and Labour’s recent handling of the riots could make them fall further – we ain’t seen anything yet. The Halloween budget is the moment upon which Labour will be judged for posterity.

Brian Monteith is a former member of the Scottish and European parliaments and senior advisor to the Tax Reform Council