The Labour party tax policy in the UK

Update 13 June 2024: You can view our comparative analysis of all the parties' tax plans here.

Update 21 May 2024: For details of Labour’s recent publication, “Labour’s Plan to Close the Tax Gap”, which builds on its pledge that it will target raising an extra £5bn a year by tackling tax avoidance, see our more recent Insights article.

Following the Labour party conference last year, we summarised what we knew about Labour's tax plans. At least one of those has been pre-empted and there has been little further information in the meantime.

However, Shadow Chancellor Rachel Reeves has now provided some further information as part of her Mais Lecture on Labour's approach to corporate taxes on the basis that certainty and stability is necessary for a healthy economy. This confirms that CT will not be raised from 25%, there will be an early roadmap for business taxation (echoing the one published in 2016 following the 2015 election) and there will be a commitment to a single autumn Budget each year.

The relevant section of the speech reads as follows:

"Business needs stability too in the tax system. And for too long our politics has militated against that. So the next Labour government is committed to a single autumn budget every year; to the publication of a roadmap for business taxation, covering the duration of the parliament, within its first six months; and capping corporation tax at its present rate of 25 percent - the lowest in the G7 - throughout the next parliament, to ensure that businesses can plan investment projects today, with the confidence of knowing how their returns will be taxed for the rest of this decade."

Labour’s tax announcements from its 2023 Party Conference

With the Labour party continuing to be favourites to secure the most seats in a general election expected to take place in late 2024, the party conference currently taking place in Liverpool takes on added significance. In particular, looking past the political rhetoric and the "Ready to serve, ready to lead and ready to rebuild Britain" mantra, what actual tax policy announcements has the potential next Chancellor of the Exchequer made in her speech to the conference?

The most high profile tax announcement is that the Labour party would end the tax "loophole" that allows private schools to avoid VAT and business rates. Putting aside the point that the VAT exemption for education is far from a "loophole" and applies throughout the EU VAT system, this has been a consistent policy for a number of years and the Labour Party leader, Sir Keir Starmer, has recently stated that it will be introduced in the first Budget of a new Labour Government - an intention confirmed by Rachel Reeves in her speech. However, there may be practical difficulties to introducing the change quickly. It is assumed that the change would be to the definition of an "eligible body" in VATA 1994 Sch 9 Group 6 Note (1). This would therefore require the change to be introduced by an Act of Parliament - most likely the first Finance Act following a first Labour Budget. Assuming a general election takes place towards the end of 2024, it may be that the first school year affected by the change would be 2025/26 at earliest.

The second high profile Labour tax policy involves the ending of non-dom tax rules and again this was repeated in Rachel Reeves speech. Indeed, the policy was in Labour manifesto for the 2019 election where, however, Labour said they would consult on an exception for foreign residents present in the UK for short periods. It appears that this remains their position with Rachel Reeves having previously said that Labour would bring in "a modern scheme for people who are genuinely living in the UK for short periods to allow us to continue to attract top international talent'.

Rachel Reeves also mentioned that she would make "tech giants pay their fair share" of tax. It is unclear if this statement amounts to anything more than a pledge to continue existing government policy to introduce the OECD Pillar One and Pillar Two changes with the consequent removal of the Digital Services Tax introduced in 2020.

In order to fund more building projects, the Shadow Chancellor announced that Labour would raise the stamp duty surcharge on overseas buyers, though no specific figure was mentioned. The current surcharge is 2% on the purchase of residential property in England and Northern Ireland by a non-UK resident purchaser (stamp duty is delegated legislation in Scotland and Wales).

Finally, her speech said that Labour would introduce a "proper" windfall tax on energy giants. Of course, windfall taxes already exist on the sector. The Energy Profits Levy, which puts a marginal tax rate of 75% on North Sea oil and gas production, will remain in place until 2028 (or energy prices return to normal). There is also The Electricity Generator Levy, which applies a 45% tax rate to revenues generated over £75/MWh from 1 January 2023. It remains unclear what further measures Labour would take to ensure these amount to "proper" windfall taxes.

Whilst not addressed in her speech, Labour have also publicly committed to ensuring that carried interest received by private equity fund managers would be taxed as income.

More broadly, however, Labour have said that they do not have plans to put up income taxes or introduce a wealth tax at this stage and the Shadow Chancellor emphasised that she "didn't come into politics to raise taxes on working people", indeed she want them to be lower.

For details of all these policies, it seems clear that we will need to await the party's manifesto for the next election.