Rachel Reeves may have killed off growth with her raid on employers’ National Insurance contributions, but today comes a reminder that she is nevertheless the relatively mild face of the Starmer government. We can at least be thankful that Angela Rayner is not Chancellor. Labour’s deputy leader has written a memo to Reeves suggesting a number of taxes she would like to see increased, and which she believes – somewhat hopefully – would obviate the need for spending cuts at the next Budget.
There are cabinet ministers who are even more hostile to the idea of low taxes than Reeves herself is
She wants inheritance tax relief on Alternative Investment Market (AIM)-listed shares to be removed altogether (Reeves has merely halved it). She wants the reimposition of a lifetime cap on how much anyone could accumulate in a pension fund before being whacked with a punitive tax – something which Jeremy Hunt abolished and Keir Starmer at first said he would reintroduce, before dropping the idea ahead of the general election. She also wants the abolition of the £500 tax-free allowance for dividend income, and the threshold for the additional 45 pence rate of income tax to be frozen at £125,140 beyond 2028 (existing plans inherited from the Conservatives would freeze it until that date).
To deal with these in turn, the AIM is already dying, with or without an inheritance tax break. It is hard to see what the total abolition of inheritance tax relief will do other than to hasten its demise. At its peak in 2007, there were 1,700 companies listed on AIM; now it is down to just over 600, with 88 leaving in the past year as they were taken over or delisted. Most of this happened before Reeves slashed inheritance tax relief. Why Rayner thinks removing the tax relief altogether would be a great money-spinner for the government is hard to say.
As for the lifetime allowance on pensions, has Rayner forgotten why Jeremy Hunt abolished it? It wasn’t to hand a tax break to billionaires but rather to stem the loss of doctors from the NHS. In common with other professionals, doctors were choosing to retire early rather than see their pension whacked with a 55 per cent tax. If a chancellor were to reapply the lifetime allowance, she would have to count any extra revenue against the cost of filling the hole in NHS staff.
As for chopping the £500 tax-free allowance in dividends, that will mostly hit employees of private firms who hold small quantities of their companies’ stock. Rayner claims in her memo that her suggestions would avoid taxes on ‘working people’. She seems to forget that working people tend to be investors, too, especially those who work in the private sector and whose pensions rely on the performance of investments rather than simply being doled out from the public purse. Abolishing dividend tax relief would be yet one more way of hitting private sector employees while public sector ones continue to enjoy gold-plated pensions.
It is unclear, too, why Rayner seems to think that a longer freeze on the threshold for the additional rate of income tax would not constitute a tax on working people. Unless, that is, Rayner doesn’t consider herself to be a working person: as a cabinet minister, she enjoys a salary of just over £160,000.
Reeves may or may not be swung by the Deputy Prime Minister’s intervention. But it does reveal that there are cabinet ministers who are even more hostile to the idea of low taxes than is Reeves herself. Many members of the current government, I suspect, would find it hard to offer enthusiastic support to a tax cut or a spending cut, ever. There is a strong possibility that the current Parliament will end with Reeves’ successor greedily eyeing up our money even more than she has done.
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