Keir Starmer Denies Election Pledges Will Be Broken Amid Reports of Reeves’ Stealth Tax Plans
Keir Starmer has affirmed that his government will stand by Labour’s manifesto commitments regarding taxes, dismissing growing concerns regarding potential stealth taxes being planned by Rachel Reeves.
The Prime Minister stated to reporters that Labour will “uphold our manifesto promises,” in response to reports suggesting that Rachel Reeves may consider extending the freeze on income tax thresholds beyond 2028 in the upcoming Budget to address a £40 billion deficit in Labour’s expenditure plans.
In a bid to bridge the financial gap, Reeves is contemplating various tax measures, including freezing income thresholds, implementing additional wealth taxes, and potentially raising national insurance contributions from employers. There are fears that these moves could result in a brain drain and prompt affluent individuals to leave the UK.
The strategy to freeze income thresholds could generate more revenue through “fiscal drag,” where inflation adjustments are not made to the 40p and 45p tax brackets, causing more taxpayers to fall into higher tax categories over time.
While Treasury sources maintain that extending income thresholds does not contravene the manifesto pledge against raising income tax, national insurance, or VAT, concerns linger that hiking national insurance on employers’ contributions could breach the commitment. Former Bank of England governor Mervyn King advised Reeves to opt for a national insurance increase instead of resorting to borrowing maneuverings.
Moreover, other potential tax rises under consideration include adjustments to capital gains tax, excluding second homes, and a potential reduction in the inheritance tax threshold. These measures have sparked apprehension, with former Tory leader Sir Iain Duncan Smith highlighting that the impact might not only affect ultra-rich individuals but also middle-income earners grappling with soaring property prices.
There are wider apprehensions about a potential exodus of the wealthy from the UK to jurisdictions with lower tax rates. A report by UBS’s Global Wealth revealed that approximately 500,000 millionaires could depart the UK by 2028, jeopardizing London’s standing as a hub for the global elite.
Nadhim Zahawi, a former Chancellor and patron of the ASI, warned that the current tax regime and anticipated anti-business policies could further drive away high-net-worth individuals, reinforcing the urgent need for government action to bolster confidence and retention of affluent residents.
Recent insights from a Freedom of Information request unveiled that a substantial number of individuals fall into a 60% tax bracket due to the loss of personal allowance for earnings between £100,000 and £125,140 annually, ultimately paying 45p on all income.
As discussions intensify ahead of the Budget announcement on October 30, stakeholders urge caution to prevent unintended consequences on taxation that could undermine the UK’s economic competitiveness and attractiveness to investors.