We Should Fear Reeves’ Halloween Tax Hikes, Says MAGGIE PAGANO
Rachel Reeves now has the perfect reason to raise taxes in the October Budget, after huge public sector pay rises last month led to a £3bn increase in government debt.
Not that the Chancellor needed an apology. She has been sounding the alarm bells since the election, desperately warning of a £22 billion black hole in the public finances and that the previous Labour government had left the worst economic legacy since the Second World War.
But now she has a more legitimate claim, or so she will say.
What’s next? Rachel Reeves now has the perfect cover for raising taxes in the October budget
July figures from the Office for National Statistics (ONS) show the Treasury has borrowed £51.4 billion this year – £4.7 billion more than the Office for Budget Responsibility (OBR) had forecast.
Last month’s borrowing was mainly higher due to recent generous public sector pay deals, which the OBR said may have cost £5.8bn more than planned.
And there is more to come, as the spending figures do not yet include the recent generous salaries for young doctors and machinists.
As the economy has been more robust over the past six months, income rose to £91bn in July.
This was slightly lower than expected, but still around £1.7bn higher than the same month last year, due to rising income tax due to the freezing of thresholds, higher corporation tax rates and VAT.
It looks set to be a multi-billion pound tax raid for Reeves’ first budget on October 30. This raid is already being dubbed the Halloween Raid.
Pay rises: The spending figures do not include recent generous pay cuts for junior doctors or train drivers
You understand why.
Economists estimate the Chancellor wants to raise at least £10 billion a year through higher taxes, and increase borrowing by about £7 billion.
Reeves repeatedly promised during the election campaign that income tax, National Insurance and VAT rates would not be increased.
That just leaves Labour’s favourite honeypot to plunder: raising inheritance tax and capital gains tax.
It would be an extraordinarily foolish move for Reeves to tighten the noose on these wealth taxes, especially if she were to eliminate or interfere with the corporate property exemption, which allows family-owned businesses to pass on their firms without incurring huge tax liabilities.
Tax rises could actually cost the Treasury money. Some accountants estimate it could lose up to £2bn if it does so, as those with money to spare simply look for ways to protect their wealth.
It’s not just scaremongering either. From what I hear, wealth planners are being called back from the beach to advise their clients on setting up trusts and various other loopholes ahead of the budget.
They have nine weeks left to prepare for Halloween. Thousands of millionaires have already left the country in anticipation of Labour’s election victory.
Many plan to do this. What would be foolish is if higher taxes also drove away wealthy individuals who are often the most productive wealth creators.
Instead of taxing them more, Reeves should be looking at incentives to reinvest their wealth, since these are the people who are risking their capital by investing in the next generation of companies. If Reeves has any doubts, he should look back to the 1970s.
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