Our Blog

July 2024 | What the new Labour Government means for tax

After 14 years of a Conservative Government, Labour, led by Keir Starmer, has assumed control with a substantial majority as the electoral map shifted from blue to red on 4 July. What does this mean for business, the economy and tax? We take a closer look here in our blog.

THE CHALLENGES

The economic landscape Labour inherited on the 5th July is significantly gloomier than it was 27 years ago when Labour last took charge. In the 1997/98 financial year, government borrowing was 1.1% of GDP, and total government debt (excluding the Bank of England) stood at 36.7% of GDP. For 2024/25, these figures are projected to nearly triple, reaching 3.1% and 91.7%, respectively.

Recent years have seen a rise in global tensions, with the defence budget set to increase to 2.5% of GDP. Additionally, the much higher debt level imposes a substantial ongoing servicing cost on the government, with net interest alone projected to account for nearly £65 billion of expenditure in 2024/25.

The new Prime Minister and his cabinet face a broader spectrum of challenges, which run deeper than just economic figures, as highlighted by chief of staff Sue Gray earlier in the year. These challenges resonate more personally with people's everyday lives than the abstract numbers of public sector borrowing. Key issues include:

The NHS funding gap and social care requirements.
Public sector pay negotiations, particularly around the NHS.
Local council bankruptcies.
The housing deficit.
Potential collapse of the largest water company, Thames Water.
Overcrowding in prisons and the criminal justice backlog.
Schools and university funding crisis.

TAX FOCUS

Labour's manifesto outlined its tax-raising plans, which include:

Reducing tax avoidance
Revising non-domiciled taxation rules;
Levying VAT and business rates on private schools;
Ending the capital gains tax treatment of carried interest;
Windfall tax on 'oil and gas giants'
Increasing stamp duty land tax rates by one percentage point on residential property purchases by non-UK residents.

The manifesto also said "We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT."

The manifesto also promised to cap corporation tax at 25% but did not address inheritance tax (IHT) and capital gains tax (CGT). These capital taxes might be featured in the next Budget, though HMRC's estimates suggest that significantly increasing CGT rates could be counterproductive due to 'behavioural effects,' such as gains being left unrealised. Conversely, a month before the election was called, the Institute for Fiscal Studies published a paper showing how closing three IHT 'loopholes' could generate nearly £4 billion annually by 2029/30.

AN AUTUMN BUDGET

Rachel Reeves, the new Chancellor, has ruled out an emergency Budget, stating that she will provide the Office for Budget Responsibility (OBR) with the standard ten weeks' notice to prepare an Economic and Fiscal Outlook before her first Budget. In theory the earliest Budget date could be the 13th September, or 18th September if she sticks with the traditional Wednesday for Budget Day.

Branagans Accountancy Services will be keeping a close eye on taxes and any changes. If you need help with your taxes or any accounting needs, then please get in touch with us on 01709 327 215 or via email at info@branagans.co.uk.

01709 327 215

Use our click to call number to get in touch: