​​A taxing debate as Labour continues to face questions over funding for its plans for government

​Just over two weeks to go before the country heads to the polls, Labour finds itself with an average twenty-point lead in the polls with Keir Starmer looking destined for Number 10.  

​But despite a campaign which has thus far avoided the gaffs that have plagued the Conservatives, the one chink in Labour’s proverbial armour has been this central question of tax and how the party plans to deliver its ambitious domestic agenda in the context of troubled economic circumstances.  

​During the first TV debate, Starmer had been slow to respond to the Prime Minister’s accusation that a Labour government would mean £2,000 extra paid in tax per household. Though this figure has since attracted widespread criticism, including from the civil service, the Conservatives have continued to double down on tax as the big risk of an incoming Labour government.   

​Labour’s manifesto, Change, released last week, committed to maintaining the current rates of National Insurance, income tax and VAT, while also freezing corporation tax at a G7 low of 25 per cent. The party has also since ruled out conducting a revaluation of council tax bands and capital gains on primary residences, while also resisting pressure from within the party for any wealth taxes.  

​So what taxes would Labour look at? Where Labour has announced reforms to the tax system, they have tended to focus on those ‘easy sells’ to the public, such as a windfall tax on oil and gas giants profiting from the war in Ukraine, closing of non-dom loopholes, and applying VAT on private school fees. Though there has been some pusback on these, Labour’s Shadow Chancellor Rachel Reeves has seemingly had no issue picking this low hanging fruit.  

​But the art of governing is not always about doing what is the most popular option, a lesson which the party will likely find out very quickly if it enters government next month and prepares for that first budget in the Autumn.  

​The scale of this was set out by the Institute for Fiscal Studies, who warned that, with Labour’s current spending commitments, ‘unprotected’ departments could face real terms cuts between 1.2 and 2.9 per cent, with services such as courts, prisons, local government and the police most at risk of further cuts. The IFS go even further in accusing all the major parties of a ‘conspiracy of silence’ on the scale of the challenges facing the country’s spending.  

​Set against Rachel Reeves’ fiscal rule that the party will only borrow to invest, the choices facing the incoming government look stark.  

​Though Starmer has ruled out a return to austerity, the underlying numbers nonetheless point to a series of challenging decisions: enact these spending cuts and take the political consequences that come with it or take the hit and introduce some targeted tax increases while making the case to the public about why the state of public finance necessitate it. In either case, the party will almost certainly have the political capital to make these decisions early into its term, but at the cost of cutting short an otherwise longer honeymoon period.  

​The party will no doubt point to its central economic strategy of fostering growth as a means of mitigating against the worst of these decisions. With findings today revealing that the UK sits bottom of the G7 for private sector investment, and has done since the mid-1990s, the party will be looking to its policies around a long term industrial strategy, the ten-year infrastructure plan, and creation of GB Energy, set against the strengthening of rights for workers, to get the economy back on track.  ​ 

​Yet even if these plans do succeed, growth will take time to arrive, and in the meantime Starmer, Reeves and co will continue to face questions about whether these numbers add up. A taxing question, but one which the party will need to get used to answering as it approaches power.