Rachel Reeves has already been backed into a corner

Rachel Reeves Backed Into Corner By Labour Tax Plans

Nimesh Shah, who is the CEO of a tax and business advisory firm called Blick Rothenberg, believes that the new Chancellor will have limited options for increasing tax revenue. The manifesto promises not to raise Income Tax, National Insurance, VAT, or Corporate Tax, which make up a large portion of the UK's total tax revenue. Instead, the manifesto aims to generate some additional tax revenue by closing carried interest 'loopholes', getting rid of the non-dom regime permanently, and applying VAT to private school fees. Additionally, there will be efforts to reduce the tax gap by cracking down on tax avoidance, with extra funding being provided to HMRC for this purpose.

He said: "The Labour Party's huge win in the 2024 General Election brings Rachel Reeves into the role of UK's first female Chancellor. With the country facing its highest tax burden in 70 years, Reeves and the new Prime Minister, Sir Keir Starmer, have a lot of work ahead to fund their manifesto promises and address the growing national debt."

Nimesh mentioned that the upcoming Labour Government will have to come up with additional funds promptly in order to fulfill Sir Keir Starmer's commitment to bring about change. The suggested tax increases in the manifesto are not projected to generate more than 2% of the current UK tax revenue. With the national debt needing to decrease in proportion to the GDP, tough decisions will need to be made.

Highly regarded economic research organizations, like the Institute of Fiscal Studies, predict that taxes may need to go up. This leaves Reeves with a pressing issue of figuring out how to fund this within the boundaries she has set for herself in terms of financial constraints.

He said: "According to history, we can expect some bad news in the first Budget after the General Election. People in private equity, non-doms, and parents with kids in private schools are likely ahead of time aware of what's to come. However, higher earners, savers, and pensioners will be paying close attention as well. Labour hasn't been clear on whether they will raise capital gains tax rates and has been silent on pension changes for those taking advantage of tax relief on contributions and retirees receiving pension income. Investors are keeping an eye on the upcoming Reeves Budget, with rumors circulating that dividend tax rates may be aligned with income tax, and there's a possibility of National Insurance being extended to landlords. It's safe to assume that personal tax allowances and thresholds will remain the same for as long as possible, as this is a lucrative measure for any Government - a legacy from Rishi Sunak's time as Chancellor."

Nimesh stated that although there is a sense of urgency to manage the country's finances, the Labour Party's significant majority allows them a lengthy mandate. This provides a unique chance for tax reform and simplification. Rachel Reeves, an esteemed economist with a picture of Gordon Brown displayed prominently in her college dorm at Oxford University, could potentially be the Chancellor that the nation has been searching for over the past two decades. Reeves has the potential to develop a comprehensive tax plan that aligns with immigration, investment, and international trade policies.

He said: "Have we learned more about Labour's plans the day after the General Election? Not really. Reeves and Starmer have the summer to celebrate their win - and how the new Labour Chancellor will shape tax policy will only be clear at the first Budget in September."