Sir Keir Starmer has failed to rule out extending so-called “stealth taxes” – as well as the introduction of a wealth tax – as his government struggles to balance the books following his recent U-turns.
The prime minister reiterated that Labour would stick to its manifesto pledge and ruled out increases to income tax, VAT and national insurance, but he did not confirm whether the government was planning to lift the freeze on income tax thresholds in 2028.
Sir Keir and chancellor Rachel Reeves are seeking to find billions of pounds in savings after the government’s recent U-turns on welfare and winter fuel payments left a black hole in the nation’s finances, while a report out this week from the Office for Budget Responsibility (OBR) gave a damning verdict of the state of Britain’s “vulnerable” public finances.
Asked by Conservative leader Kemi Badenoch whether he could guarantee he would keep the manifesto pledge of not increasing income tax, VAT or employee national insurance contributions, Sir Keir gave a one word answer: “Yes!”
But when she asked if it is still the government’s policy to unfreeze income tax thresholds, Sir Keir said: “No prime minister is going to write the budget in advance, but we are absolutely fixed on our fiscal rules”.
At the last budget, Ms Reeves promised to end the freeze on income tax thresholds after 2028.
But if it were extended to the end of the parliament it could £9bn-10bn a year, according to the Institute for Fiscal Studies (IFS) think tank, as workers are dragged into higher tax bands as earnings rise. The think tank says extending the freeze would mean an additional 400,000 people would be eligible to pay income tax, while another 600,000 would be pulled into higher and additional rates by 2029-30.
Pressed on the issue after PMQs, the prime minister’s spokesperson repeatedly refused to say whether the government plans to go back on the chancellor’s promise to unfreeze tax thresholds.
“As you know, tax decisions are taken at the budget”, he said. “I’m not going to comment on tax speculation ahead of a fiscal event.”
When the previous Conservative government introduced the freeze on tax thresholds, Labour – in opposition – dubbed the move a “stealth tax”.
Meanwhile, the prime minister also failed to comprehensively rule out the introduction of a wealth tax amid growing pressure from trade unions and party grandees, most notably Lord Kinnock, who said over the weekend that the government should consider such a measure to balance the books.
Pressing on the issue in the Commons, Ms Badenoch asked: “What is more worrying is that now he’s flirting with Neil Kinnock demand for a wealth tax. Let’s be honest about what that means. This is a tax on all of our constituents, savings, on their houses, on their pensions. It would be a tax on aspiration. Will the prime minister rule this out?”
Instead of the earlier direct response he gave on income tax, VAT and national insurance rises earlier, the prime minister appeared to duck the question.
He said: “We will not be asking for [Tory] advice. What we did in the budget was stabilise the economy through the measures taken by the chancellor. What does that link to? For interest rate cuts for mortgage holders. That’s hugely important, because what happened on the Liz Truss mini budget.”
“So no, we don’t need lessons from them”, the PM added.
Starmer admitted “we can’t just tax our way to growth” when pressed on the wealth tax issue later in PMQs by Green Party co-leader Adrian Ramsay but still did not rule the move out.
And asked if it is still the government’s policy to unfreeze income tax thresholds, Sir Keir said: “No prime minister is going to write the budget in advance, but we are absolutely fixed on our fiscal rules”.
The failure to answer had echoes of the mini crisis the prime minister created last week when he avoided an answer on the chancellor’s future as she sat in tears behind him in PMQs. The incident saw panic on the markets at the prospect of Ms Reeves getting the sack until the prime minister scrambled to provide assurances she is safe.
Last week, an embarrassing climbdown on welfare saw the government’s benefits reforms gutted almost entirely. Savings from the bill were slashed from £5bn to nothing, leaving a gaping hole in the public finances which ministers are now scrambling to fill.
A Conservative Party spokesman said: “The prime minister emphatically ruled out any rises in income tax, NI or VAT. But he wouldn’t repeat the promise his chancellor made in the autumn to lift the freeze on income tax thresholds. He also refused to rule out a retirement tax and wealth taxes. The only reasonable conclusion is that a toxic cocktail of Labour tax rises are coming in the autumn budget.”
Experts warned the prime minister that bringing in a wealth tax would be counterproductive.
Dhana Sabanathan, a partner in the tax, trusts & succession team at national law firm Michelmores said: “A wealth tax has long been debated in the UK; the broad concept being that the wealthy may be able to control the amount of income and gains that accrue to them personally, and so a tax on their assets may be a fairer way of ensuring a level playing field.
“However, in practice implementing such a tax faces many practical issues. Due to rising house and land prices in some parts of the UK, there are many asset rich individuals (such as elderly home owners and farm owners) who simply would not have the liquidity to pay the tax, without selling their main asset or home.”
