The time for debate and conjecture is now over. The General Election was settled on 4 July and we now know we have a new Labour Government, giving us a more solid picture of what tax is likely to look like in the near future.
The new Chancellor Rachel Reeves wasted little time in getting started, announcing a Spending Audit in Parliament on 29 July.
In that speech, she reiterated the message that Labour delivered throughout the election that it will not be making major changes on the main forms of taxation.
Ms Reeves said: “I can repeat – from the despatch box – our manifesto commitment that we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT for the duration of this parliament.”
She also announced further details on the manifesto commitments to “close tax loopholes and clamp down on tax avoidance, to ensure we bring that money in as quickly as possible.”
Labour has also stated it will cap Corporation Tax at the current level of 25 per cent for the entire parliament.
But what about other areas, such as Capital Gains Tax, Pensions and Inheritance Tax? As soon as the Spending Audit was revealed, commentators immediately returned to speculate whether these elements could be tinkered with to bring in tax receipts.
We won’t know for sure until the new Government’s first Budget, which has now been revealed to be coming on 30 October.
In the case of CGT, it’s not been totally clear so far what the new Chancellor will do. Ms Reeves has been quoted in the last 12 months saying there were no plans to raise CGT, but there was virtually no mention of it in the official manifesto, suggesting it could be one option. Given the so-called £22bn blackhole that Ms Reeves claimed the new Government had uncovered, and her stinging criticism of the state of the public finances she has inherited, it is widely believed that some form of tax rises are inevitable to plug the gap.
What else might we see? In other aspects of taxation, Labour has pledged a crackdown on tax avoidance and modernising HMRC.
The manifesto stated: “We will increase registration and reporting requirements, strengthen HMRC’s powers, invest in new technology and build capacity within HMRC. This, combined with a renewed focus on tax avoidance by large businesses and the wealthy, will begin to close the tax gap and ensure everyone pays their fair share.”
Labour has also pledged to publicise a roadmap for business taxation for the next parliament and to “retain a permanent full expensing system for capital investment and the annual investment allowance for small business”. The party also promised to give firms ‘greater clarity’ on what qualifies for allowances.
In the King’s Speech, the Government introduced a bill regarding what it called a “fiscal lock” – to ensure the Office for Budget Responsibility, the fiscal watchdog, assesses all tax and spending announcements. This was brought in in response to the so-called ‘mini-Budget’ of the Liz Truss premiership, which led to turmoil in the markets.
King Charles announced in Parliament: “Stability will be the cornerstone of my Government’s economic policy and every decision will be consistent with its fiscal rules. It will legislate to ensure that all significant tax and spending changes are subject to an independent assessment by the Office for Budget Responsibility. Bills will be brought forward to strengthen audit and corporate governance, alongside pension investment.”
The King’s Speech also included, among other things, one of the headline policies talked about during the General Election – the removal of VAT exemption for private school fees. And it was confirmed at the end of July when that will kick in. The 20% VAT charge on private school fees will begin in January 2025.
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