Labour “The Pro-Business, Pro-Investment Party”

Yesterday Rachel Reeves pledged to freeze corporation tax at 25% for the duration of this parliament while Labour announced £63bn of private investment into the UK at its Investor Summit. All this is remarkably pro-business for a political party with a reputation for the opposite and stands in contrast to a Conservative party that frequently appeared unsympathetic to the needs of industry, as most famously exemplified by Boris Johnson in his 2018 “f@ck business” remark.

Reeves has already agreed not to increase income tax, VAT, or employee contributions on national insurance, which leaves few options for meeting its stated spending commitments. Expectations are that the government will look to plug the gap through increases in wealth taxes such as inheritance tax (IHT) and capital gains tax (CGT), which is more in line with Labour’s tradition of taxing the rich. 

This will, of course, meet with the typical arguments that such taxes cause capital flight, brain drain, job losses and, ultimately, a net loss in tax revenue. The severity of the increases will determine the degree to which the wealthy jump ship, however, and should prove mostly bearable unless the government delivers an especially harsh jolt.

Labour must administer these taxes sensibly if it is truly serious about helping homegrown businesses and encouraging investment into the UK. Maintaining tax reliefs for investment into UK business is especially important if we are to support our companies and build a vibrant economy.

Indeed, raising CGT and IHT, whilst maintaining reliefs on these taxes for investing in UK business, could likely increase funding for our companies as the tax savings would be that much greater. This could be a key step in encouraging inflows into the UK's stock markets following several years of outflows as UK money has headed abroad into big tech and the like.

The situation does appear to be changing with net inflows in the past couple of months, but it will be a very slow process at current rates potentially taking several years for us to return to historic investment levels. 

The Labour government has an opportunity to supercharge this process, while still raising the tax dollars it requires. It should leap at the opportunity.