As predicted some time ago, Jeremy Hunt undermined the whole Labour election strategy by closing the non-dom rule yesterday.
According to Labour, doing this was going to fund almost every policy that it ever talked about. The sum likely to be collected as a result of this change might have been £3 billion or so at best, but as I indicated in the Taxing Wealth Report 2024, there are very good reasons for thinking it might be somewhat less. The Budget document thinks it more like £3.1 billion.
Since I had campaigned on this issue since about 2005 and sat on working parties about replacing this rule in the Treasury in 2009 and afterwards, when I was still invited to go there, and the proposal now tabled looks remarkably like what was discussed at that time, I have no complaints about this happening.
But where does this leave Labour? It was going to apparently fund all its new NHS staff and all the appointments that they would offer and other things besides using this money. Hunt has now claimed to have used it to fund national insurance reductions. Does that mean Rachel Reeves now has nothing left that she can talk about?
So far, I have not heard enough of Labour spokespeople to work out what they are going to say, but Hunt has definitely double-bluffed them. This line of attack is now no longer available to Labour. What are they going to use to pay for things now, given that they insist that taxes fund spending and that the national credit card is maxed out (both of which claims are completely wrong)? It will be fascinating to see.
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Isn’t this a silly question? Because obviously, since the Tories will already have implemented this Labour policy, the money’s going to be sitting there waiting for Ms Reeves to spend.
(Tongue firmly in cheek).
Interesting interviews with BBC Breakfast News today.
Reeves doubled down on the need to reduce debt, (citing her BoE background) and trotted out the old trope that the Labour plan was to grow the economy to pay for everything. However, she also doubled down on the need to rein in spending to reduce debt. The fact that she apparently doesn’t realise it is almost impossible to do the former if you are also doing the latter is depressing. Setting herself and the country up for failure, in fact.
Then, I’ve just watched Hunt metaphorically soil the bed in an interview with Charlie Stayt. Asked about how he felt about lower earners being left hundreds of pounds worse off, he seemed to basically admit he didn’t know this would be the case! That’s Labour’s attack lines ready-written for them. Like a rabbit in the headlights.
Thank you, Mariner.
Reeves always cites her BOE background, but not her next gig, senior economist and lobbyist at HBOS, nationalised not long after. Reeves was also seconded to the IMF from the BOE, immiserating developing countries with structural adjustment programmes. Her views on development are as fruity as how a developed economy / the UK works.
Developing countries have dodged a bullet, thanks to Brexit, as the EU has made clear, part of a quid pro quo with the US, that no UK candidate will be considered to head the IMF. That rules out Reeves later and, in the recent past, ruled out Osborne.
I met Reeves and former BOE colleagues in 2010. It was odd that to observe the child of (south London) teachers so lacking in empathy for those less fortunate. Her former colleagues share that view. The photoshoot in the last Saturday’s Telegraph conveyed that impression / harshness.
Labour will be tougher than the Tories on benefits: https://www.theguardian.com/politics/2013/oct/12/labour-benefits-tories-labour-rachel-reeves-welfare
‘In an interview in the Guardian, Reeves said: “We don’t want to be seen, and we’re not, [as] the party to represent those who are out of work.” ‘
https://www.disabilitynewsservice.com/anger-after-reeves-tells-benefit-claimants-labour-is-not-for-you/
“”We have got some really great policies – particularly around the jobs guarantee and cancelling the bedroom tax – that show that we are tough and will not allow people to linger on benefits, but also that we are fair. Where there are pernicious policies like the bedroom tax, we will repeal them.”
https://www.theguardian.com/politics/2013/oct/12/labour-benefits-tories-labour-rachel-reeves-welfare
Ten years later and they can’t say if they will scrap the bedroom tax or the 2 child cap. Well maybe free school meals then? “Reeves said: “Again, it’s one of those things that I just can’t see where the money is going to come from.
“Free school meals for the children who need it most but I’m not going to be able to magic money out of thing air and the most important thing is that the sums add up.”
https://www.thenational.scot/news/23665526.labour-cant-say-get-rid-bedroom-tax/
Maybe they can get a free balance transfer to a new better credit card with a 12month zero interest rate? Might get one of those myself, if I can get the sums to add up.
Ms Reeves and the Labour leadership have tied themselves in knots by proclaiming their adherence to the economic orthodoxy of “financial prudence and the family credit card”.
Sadly there is little evidence or encouragement that they can think outside the box.
What should Labour do?
Read the Taxing Wealth Report!
🙂
Adopting the taxing wealth report in their manifesto might make the hard left happy but would blow apart Labours hopes of forming a majority Govt.. or maybe this is what you want?
Tell me why?
Increasing tax on those with most wealth is always very popular. Why wouldn’t it be so now. Your detailed reasoning would be welcome.
Capital Gains Tax on final sale of property could be a real problem if included in a manifesto; I would park that one to one side for now.
Investment income tax surcharge would be tricky, too as it would impact older voters most …. and they DO vote. However, equalising taxation on earned, unearned income and capital Gains is important. Personally, I would phase out NI and load it into Income Tax over a 10 year period to allow older people to adjust. Given that it’s a racing certainty that Labour will win this election and probably the next they could achieve this if they act now. (I know NI contributions determine eligibility for benefits/pensions but there must be a better way to do this).
As for all the rest of the ideas? They would not trouble many voters at all.
Thanks
I like the investment income surcharge …..
But I hear what you say
I suppose the risk is that a radical tax policy which damaged to ultra-rich would prompt them to massively fund a Tory campaign of misinformation. That seems to be what Labour fears, it’s hard to know if their fears are justified.
Who or what is this “hard left” that people talk about?
The real worry should be that for the past 14 years we have had a “hard right” government that has been solely responsible for the current dire state of the country – economically, physically, socially and morally, where those who support this have no sense of shame or self-awareness of their inhumane and fundamentally selfish motivations.
I suppose even a particular sort of grown up needs a bogeyman living at the bottom of their garden path.
I am jolly sure, however, that it’s not going to be “hard left”!
Clive re: ”I know NI contributions determine eligibility for benefits/pensions but there must be a better way to do this” – how about just making citizenship determine eligibility i.e. a universal, non-means tested pension for all over a certain age?
I agree
Jim, I am not going to disagree with you….
@Clive Parry – good points re CGT on property etc: beware of losing (too many of) the ‘grey voters’; who are always nervous about the triple lock and other issues. Maybe help keep them ‘on board’ by reinstating the tax threshold indexation, at least for the bottom tax-free allowance?
On NI – indeed, roll it progressively into a unified tax across earned and unearned income (but maybe a modest investment-income surcharge on an interim basis, well before an election; or soon after the 2029 one?). Employers’ NI would keep track of the employment/entitlement admin; and could also be justified by (eg.) using it (‘nominally’ if not actually hypothecated) to fund greater spending on training boards, like in ‘the old days’ of the EITB etc. – part of the GND transition.
Where do you find £170 billion from?
Thank you, Richard.
How about bankster bonuses? ‘Tis the season as bonuses are paid this month and the budget was yesterday.
At the bankster trade body, we kept a log of commitments to be funded by such taxes and wondered about having it placed with bankster friendly stenographer so as to embarrass particular politicians.
Upcoming Labour need look no further than their 1945 government to see how a near-bankrupt government founded the welfare state including the NHS, and start to build 4.5 million houses, most of which were “affordable”. We also had 3.5% 25-year fixed rate mortgages that people could afford on one salary. There were also cheap rail fares and low energy prices.
The only people who can’t see it are the Conservatives and Labour.
Agreed
Re 1945 and “affordable” homes, the policy was, of course, affordable homes to rent. This has been destroyed since 1979. Deliberately so, mainly by Tory Government’s, but also Labour.
Labour now appears to want to become the party of homeownership, whereas the real crisis is arguably in affordable housing to rent, and security of tenure (or lack of). The current greedflation in rising rents is likely to stay, because even when IR’s start to come down, which will help homeowners and their mortgage repayments, there will be nothing for renters. There never is. Rising rents are seen as a one way ticket, they rarely fall. Too many vested interests in the housing market, usually supported by Government, will make sure of that. I’ve come to the conclusion that if you are a renter in this country, you are a second class citizen. You simply don’t have the same rights and options that a homeowner has, and it is not an issue at all for the Tory and Labour elite!
Labour should be the party of affordable rents. No chance of that happening, though.
I fear your concusion is right.
Rachel Reeves is far too middle class outer south east London to believe in social housing
Labour should also look to continental models of home-making in rented accommodation with massively greater tenants rights, long-term contracts and nothing like ‘S.20 no-fault evictions’. In Belgium, rental contracts can be linked to a national inflation index and automatically increase annually; landlords have to give six months notice (at any time… but ONLY if they’re repossessing in order to live in the property themselves, or due to a few other restricted reasons, or tenant’s misbehaviour) and six-months notice without reason on a 3-year cycle (which gives the opportunity to realign with a market rent, if it’s moved far from the indexed amount).
on a lighter note.
My brother lives in Scotland and reads the Scottish Daily Mail-using the excuse that his wife likes their crossword puzzle.
It seems the paper has been berating an SNP politician for not knowing about the Laffer curve.
I have always regarded the Laffer Curve as a bit of junk economics but I may have found a case where it works.
Faced with a packet of cigarettes costing up to sixteen quid, several people I know have decided to quit smoking.
Thus a high tax has driven deterred an activity and the overall revenue will probably fall. Well, maybe.
The Laffer Curve is a statement of the mathematical bleedin’ obvious. If tax rates are zero you will get no revenue; if tax rates are 100% then you will get no revenue as nobody will do anything. Currently tax rates are neither 0 or 100 and we do raise revenue.
So, revenue will rise as tax rates rise until, at a certain point, revenue will start to fall. Simple, obvious and true.
The question is “at what point to revenues fall?”…. and this IS interesting. All the evidence suggests that tax rates are well below this number.
Precisely
I have debated with Arthur Laffer and in a vote of the American Chamber of Commerce in Europe beat him hands down. He was not amused.
Did tax revenues fall when the highest rate was well above 90% during WW2 and was 90% for much of the 50’s and 60’s according to Wikipedia?
Hard to tell, because of then times.
Generally, research has found that somethin around 70% might (I stress, might) be a tipping point.
I think there is no single optimum tax rate, as it will depend on what people think taxes are used for.
‘Beat him hands down’?
I imagine that other people’s assessment might be quite different than your own.
I based my comments on the audience vote.
See https://www.taxresearch.org.uk/Blog/2018/10/03/murphy-laffer-tax-co-op-debate/
Karl,
Is your definition of ‘ultra rich’ someone that earns more than £50k?
Because that’s who Richard targets in some of his proposals.
You have not read then then, have you?
The front-page headline in today’s (Thursday’s) i-paper: “Labour rules out taxing wealthy to avoid £20bn cuts”, linking to this story: https://inews.co.uk/news/politics/labour-rules-out-taxing-wealthy-budget-2943966
Depressing, to put it mildly.
Very depressing