Rachel Reeves is weighing up plans to offer income tax or national insurance cuts in Labour’s general election manifesto to show that the party is on the side of “opportunity and aspiration”.
The shadow chancellor is facing pressure from frontbenchers to make a “retail” offer on tax to voters who are struggling with the cost of living crisis. She has said she makes “no apology for wanting working people to have more money” and that she believes the tax burden is too high.
Reeves believes that tax cuts offered by Labour must be “bombproof” and should not threaten the party’s fiscal credibility, which she views as integral to an election win.
Labour’s offer will also be contingent on the Conservative Party’s tax plans, with Rishi Sunak considering cuts to inheritance tax or income tax in the spring budget as he seeks to turn around his electoral fortunes.
The party’s focus, if it decides to push ahead with cuts in the manifesto, is likely to be on payroll — income tax and national insurance — as part of a package of measures to incentivise work and grow the economy. It would depend on the economic outlook improving.
While Labour is likely to support any Tory pledge to cut income tax in the spring budget, it has made clear its opposition to Conservative plans to scrap or reduce inheritance tax on the basis that this would predominantly benefit the wealthy.
Reeves has said that cutting inheritance tax “is not the right priority”.
One senior member of the shadow cabinet said: “We need to show that we get what people are facing, that we’re on their side. There should be a flagship offer on tax.”
A source close to Reeves said: “She has said she wants to see the tax burden come down. She has made the argument that taxes on working people are too high. Any offer has got to be bombproof; it’s got to be credible. Labour has lost the last few elections because we’ve gone into them being seen as against opportunity and aspiration.”
Darren Jones, the shadow chief secretary to the treasury, said that Labour wanted to cut taxes for working people. He said: “What we’ve not been coy about is the tax burden is higher than it has been for a very long time. We want taxes to come down on working people. That’s why we supported the cuts.”
Asked if that included wealthier voters, he said: “People who go to work to earn a living, yeah. People who pay income tax, national insurance — the burden is higher than it’s ever been.”
The Tories will focus their economic attacks on Labour’s plans to borrow £28 billion to spend on green investment. Jeremy Hunt, the chancellor, has said that Labour is being “fundamentally dishonest” and will have to ultimately break its own fiscal rule to make sure government debt is falling as a percentage of national income.
There have been questions within Labour over whether it will retain the £28 billion green investment pledge. Reeves has made clear that she will prioritise keeping to her fiscal rules over all policies.
Paul Johnson, the head of the Institute for Fiscal Studies, has said that neither Labour or the Tories are being open about their spending plans given the scale of cuts expected over the next five years to maintain current fiscal rules.
“Neither side is being completely open here. Hunt makes his numbers add up by pencilling in big spending cuts without saying what they’ll be. Labour know that spending pressures will be very strong and not just for £20 billion of green investment. Their numbers won’t add up any better without either those same cuts or higher taxes.”
Reeves has already ruled out introducing wealth taxes to raise money, including a mansion tax on expensive properties or increasing rates charged on capital gains from shareholdings and property. She has also ruled out increasing the top rate of income tax.
In August she told The Sunday Telegraph: “We don’t have any plans to increase taxes outside of what we’ve said. I don’t see the way to prosperity as being through taxation. I want to grow the economy.” Of the prospect of any form of wealth tax, she added: “We won’t be doing that.”
Read more:
Labour is considering tax cuts to become ‘party of opportunity and aspiration’