Published On: Thu, May 25th, 2023
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Labour tax plans ‘would cost UK £350m-a-year due to exodus of rich’, say Treasury analysts | Politics | News

Internal Treasury analysis reportedly shows that Britain would have to spend £350 million a year on Labour’s tax raids because the wealthy would leave the country.

The research indicates Sir Keir Starmer’s plan to increase taxes on investment funds and non-doms would cause investors to leave Britain and cause a decline in overall revenue. Shadow Chancellor of the Exchequer Rachel Reeves laid out her “business model for Britain” on Wednesday (May 24), blasting globalisation and “trickle down” economics when speaking to a Washington think tank.

Her speech and an additional 11,000-word pamphlet featured some references to personal taxes. But a 2018 paper written by Ms Reeves, who at the time was chairman of the business select committee, shows that she once believed there should have been a plethora of new taxes such as levies on property, land and gifts.

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The shadow chancellor also called for a rise in capital gains tax, which she now claims she has “no plans” to enact.

Reeves called for a new “green special relationship” between Britain and the US on Wednesday, promising to mirror Joe Biden’s Inflation Reduction Act by investing in the UK’s clean energy sector.

A series of taxes on investment funds, private schools, landlords and oil and gas companies have been pledged by Labour should it wins the next general election, with an additional vow of billions more in public borrowing to cover the cost of green investment.

The opposition insists £3.5 billion extra revenue would be raised by getting rid of non-dom status and raising taxes on private equity bosses that would instead be invested in training more NHS staff. However Treasury analysis of both policies found that they could drive some Britons out of the UK in attempts to avoid the taxes, which would cost the Labour government an extra £350 million-per-year after five years, say reports.

Officials said on Labour’s plans to boost “carried interest” payments by private equity funds by 12 percentage points: “Initial analysis conducted in 2020 indicated that this could have a net cost to the Exchequer, growing to around £350 million per annum after five years.

“This reflects the prevailing economic conditions and an assessment of the behavioural response of relevant taxpayers at the time the estimate was made.”

Officials also argue that Labour’s claim that few non-doms would leave the country if their privileged tax status was axed as a result of other loyalties to the UK, The Telegraph understands.

The possibility of Treasury civil servants opposing the policies if Labour are victorious in the next election because they would be a drain on the taxpayer is also raised in the analysis.

According to a Labour spokesman Ms Reeves had “made it clear that all of Labour’s policies in the manifesto will be fully costed and full funded”, and backed it up with London School of Economics research which claims that getting rid of non-dom status would make £3.2 billion in revenue.

The spokesman said: “If the government is bandying around new figures, they should publish their working and explain exactly why they think keeping non-dom status for a super wealthy few is the right choice when working people face such an enormous tax burden.”

Non-doms can avoid tax on their foreign revenue because of the remittance basis, which has been in place since income tax was introduced in 1799, and was first applied to colonial produce that was yet to be shipped to England.

Labour has vowed to replace it new plan for individuals residing in the UK for short periods which is based on comparable schemes in France and Canada.

Then Chancellor of the Exchequer George Osborne previously altered the rules in 2015, which means the status can now only be claimed by permanent UK residents for 15 years.

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