Shadow Chancellor, Rachel Reeves says Labour will fund their pledges through a tax avoidance clampdown after Tories โstealโ non-dom policy.
Amidst the growing concern regarding the dire state of the public finances, including underfunding of the NHS and childcare sector, questions have been raised regarding how a new government is going to fund and improve these sectors.
In Chancellor Jeremy Huntโs latest budget, he revealed that the Government will lift the policy of enabling wealthy individuals to live in the UK but not pay domestic rates of tax on their overseas income and wealth, otherwise known as the non-dom status, to funds cuts to national insurance.
In conjunction with the conservativesโ pledges of lifting the policy of non-doms, they further adopted Labourโs plans to extend the windfall tax on oil and gas companies. These ideas, traditionally associated as left-wing policies, have left Labour with questions over what they will now propose to fund key services.
Confronting these prevailing uncertainties, yesterday, the Shadow Chancellor announced that Labour will fund their pledges, such as increasing appointments in the NHS and investing in breakfast clubs for primary school children, through tax avoidance clampdowns and closing loopholes in the Governmentโs plans to abolish exemptions for non-doms.
What Does Their New Pledge Involve?
In Labourโs pledge to โclamp downโ on tax avoiders and โclose loopholesโ that the Government has created within their plans to abolish exemptions for non-doms, the question still remains over how exactly they will do this and how far this sets them apart from the Conservatives. Laura Trott, Chief Executive to the Treasury said: โThe Conservatives have [already] introduced over 200 measures to clamp down on tax non-compliance and we are sticking to the plan to strengthen the economy so we can cut taxes.โ
However, Labour have claimed that they aim to fix the โbrokenโ HMRC system. Due to the rise in the gap between the amount of money HMRC is owed and the amount it receives, they will invest up to ยฃ555 million a year in boosting the number of compliance officers at HMRC, to increase productivity.
Speaking to Chamber, the Institute for Fiscal Studies, has commented on this, stating that โThere is currently no official baseline for HMRC budgets in the next parliament, so itโs not possible to say whether Labourโs proposed investment in HMRC is additional to what would have happened anywayโฆ Additional investment in HMRC would likely raise revenues. There are signs of underinvestment in HMRC. But there is uncertainty around exactly how much could be raised for each additional ยฃ1 of investment in HMRC. In practice, a Labour government may find that their proposed ยฃ555 million of investment into HMRC does not yield the additional ยฃ5 billion they are targeting by the end of the next parliament.โ
Speaking to Chamber, The Institute of Economic Affairs further added: โEvery chancellor dreams of being able to raise more tax revenue without having to actually increase taxes and announcing a clampdown down on โtax cheatsโ is always a popular response. Itโs obvious that individuals who illegally avoid tax should be required to pay; but more enforcement is far from a silver bullet to fill fiscal shortfalls. Itโs unclear how much more staff can squeeze out of tax cheats, with a significant decline already achieved in recent years. Thereโs also an associated risk a risk of excessive harassment of law-abiding taxpayers, forced to complete more paperwork, spend money on lawyers and accountants, and infringements of privacy. Ultimately the best way to increase tax revenues is through reform, that simplifies the system, grows the economy and ensures more businesses and individuals are financially flourishing and paying more taxes.โ
โWhile the Tories cut murky deals in the dark with their mates using taxpayersโ money, Labour will tender in the public interest, keep the receipts and publish them out in the open because the public deserves the truth and transparency about their taxesโฆOur contracts dashboard will finally ingrain honesty and openness into the heart of public spending, with transparent information about all contracts awarded and suppliers who fail to deliver.โ
Deputy Leader of the Labour Party, Angela Rayner
Final thoughts: Is this a step in the right direction?
Whilst Alex Dunnagan, Acting Director of think tank TaxWatch, told openDemocracy that, โLabourโs proposal to increase the transparency of multinationals should be welcomed,โ and the Fabian Society claims that โLabourโs plans is business sense. Invest ยฃ500 million per year to generate up to 10 times as much,โ there is still resounding scepticism over how much revenue will be raised to fund their pledges that Britainโs broken public services so desperately needs.
The proposed reforms certainly signal a move towards greater transparency and accountability in taxation, which aligns with Labourโs pledge to prioritise public interest over private deals. However, lingering doubts persist regarding the efficacy of the proposed measures in generating the targeted revenue.
As the political landscape evolves and these proposals are further scrutinised, it remains to be seen whether they will represent a substantial step forward in addressing the funding challenges facing critical public services.
For more information about the upcoming general election and the political parties’ policies, subscribe to our newsletter and visit the shop to purchase the new edition of our journal.
To learn more about the Labour manifesto, read our article here.