Labour are finalising plans to close a series of tax loopholes that would release billions of pounds to fund spending commitments at the general election.
A review of the tax system by Rachel Reeves, the shadow chancellor, is understood to have identified at least £4 billion of additional revenue that could be used to pay for pre-election giveaways.
Most announcements will be held back until shortly before the election campaign to maximise their impact and avoid the Conservatives closing the loopholes themselves.
Among the areas being looked at are:
• Reform of inheritance tax by closing exemptions that allow the super-rich to protect their wealth when they die by investing in assets such as farmland. At present agricultural land can be passed on at death, exempt from the 40 per cent rate of inheritance tax regardless of whether the owner farms it.
• Ending business relief for inheritance tax, which exempts shares in an unlisted company or a significant interest in a business. This and the farmland reform would raise an estimated £1.5 billion a year.
• Scrapping or reducing business asset disposal relief, which allows people who own more than 5 per cent of a company to sell their stake and pay a lower tax rate on their profits. Analysis suggests that this costs the Treasury over £1 billion a year as it cuts the marginal rate of tax from 20 per cent to 10 per cent.
A report this year by the Resolution Foundation think tank found that the government could raise £3.5 billion by ditching five tax reliefs used by an estimated 70,000 people.
A senior Labour source said closing tax loopholes for the wealthy would provide useful “wedge” issues with the Tories during the election campaign. They pointed to the success of Labour’s pledge to remove the VAT exemption on private school fees as an example of a policy which not only raised money but was broadly popular.
“Rachel’s team has built up a war chest of money that can be found by closing down some of the existing loopholes in the tax system that overwhelmingly benefit just a tiny number of people,” the source said. “The big question is when to deploy it. The thinking is that you don’t want to do anything too soon but wait until much closer to the election.”
Big-ticket taxes untouched
The need to identify loopholes is partly driven by Reeves’s determination not to allow the Tories to fight the election on tax. She has already confirmed that a future Labour government would not bring in a mansion tax on expensive properties, increase capital gains tax or raise the top rate of income tax.
Labour is, however, considering a carbon border tax on goods coming from countries with less stringent net-zero rules than Britain. “This is something that is being looked at by the EU and it is clearly something we need to examine too,” one Labour figure said. “We have to find a mechanism to protect our own industry from dumping.” However, they added this was “more likely to be an issue for government” rather than the election manifesto.
Britain’s myriad tax reliefs cost the Treasury £195 billion in 2021, figures from HM Revenue & Customs show. The largest exemption was for capital gains on the profits from people selling their home, which is worth £37 billion — an increase of £7.1 billion over five years. Income tax relief from pension contributions costs the Treasury a further £26 billion.
A Labour source said Reeves was highly unlikely to move on either of these big-ticket items but that there was “plenty of scope” to close smaller loopholes, probably saving £4 billion, or perhaps up to £10 billion under a radical programme.
A Labour spokesman declined to comment but pointed to previous comments by Reeves in which she pledged to look at “every single tax break”.
“If it doesn’t deliver for the taxpayer or for the economy then we will scrap it,” Reeves said in 2021.
