UK General Election 2024 result - Labour majority

Introduction

The Labour Party won an overall majority of seats in the UK General Election held on 4 July 2024, meaning that they will form a government. 

This publication summarises what we know about Labour’s tax policies, based on their manifesto and other relevant documents. The note begins by setting out Labour’s policies in different areas of taxation, and also has a specific section on Labour’s plan to raise revenue by closing the tax gap. Finally, the note comments on when the next Budget is likely to happen. 

Labour manifesto 

Revenue raising 

Labour’s manifesto contains policies that Labour calculate would raise £8.55 billion per annum by 2028/29. £5.23 billion of this comes from closing the tax gap (a separate section on this is enclosed below) and “closing further non-dom tax loopholes”. The remaining £3.32 billion to be raised comes from pledges relating to specific tax policy measures. These are set out below, with information on the revenue that Labour have calculated would be raised included where relevant. 

Specific tax policy pledges

Business taxation

Labour’s manifesto states “The business tax regime matters for investors. It is not just the rates of tax that matter, but also certainty”, and goes on to state that Labour will approach business taxation “with a strategic approach that gives certainty and allows long-term planning”. The measures that Labour set out to deliver these pledges include: 

• Publishing a roadmap for business taxation for the next parliament;
• Committing to one major fiscal event a year, which is intended to give “families and businesses due warning of tax and spending policies”;
• Capping corporation tax at its current (main) rate of 25% for the next parliament, with a pledge to “act if tax changes in other countries pose a risk to UK competitiveness”;
• Retain a permanent full expensing system for capital investment and the annual investment allowance for small businesses. Labour add that they will give firms “greater clarity on what qualifies for allowances to improve business investment decisions”
• Replace business rates with a new system. 

Labour also state that they: 

• Support the “implementation of the OECD global minimum rate of corporate taxation”.
• Will make changes to the Energy Profits Levy (the windfall tax on oil and gas companies). These changes include (i) extending “until the end of the Parliament” the sunset clause that will cause the levy to come to an end, (ii) increasing the rate of the levy by 3 percentage points, and (iii) removing “unjustifiably generous investment allowances”. Labour have however stated that they will retain the Energy Security Investment Mechanism. These measures are costed as raising £1.2 billion per annum by 2028/29. 

Personal taxation

• Labour pledge that “Labour will not increase taxes on working people, which is why we will not increase National Insurance [or] the basic, higher or additional rates of income tax…” 
• The Labour manifesto does not comment on income tax or National Insurance Contribution (NIC) thresholds. These are currently legislated to be frozen until 6 April 2028. On 8 June 2024, Labour MP Jonathan Reynolds said on BBC Breakfast that Labour would “inherit the government’s spending plans” and that he made a specific remark that the income tax personal allowance “is set to be frozen for several years”. Labour’s manifesto does not include any costings for the freezing of the income tax and NIC thresholds (presumably since these measures are already taken into account in government spending figures). In March 2024, the Office for Budget Responsibility published an Economic and Fiscal Outlook in which they calculated that the threshold freezes would raise £41.1 billion per annum by 2028/29.   
• Labour have pledged to “…abolish non-dom status…replacing it with a modern scheme for people genuinely in the country for a short period” and “…end the use of offshore trusts to avoid  inheritance tax…”. In April 2024 the Labour party distributed a statement to the press in which they stated that they support most aspects of the replacement regime announced by the Conservatives in March 2024, including a four-year arrival window during which foreign income and gains will be exempt from UK taxation and the principle of a ten-year window for inheritance tax.
  
  Labour do however plan to change aspects of the rules announced by the Conservatives, including not legislating for a 50% exemption from foreign income in 2025/26 for certain individuals previously taxable as non-doms and changes to the inheritance tax rules that apply to trusts. Labour’s press statement also said that the party is interested in exploring an investment incentive for UK investment income during the four-year window so that UK investment is not disincentivised. Labour’s manifesto does not contain a separate figure for amounts raised by the changing aspects of the reforms previously announced, though the press statement included an estimate of “£430m in inheritance tax foregone a year”.
• Labour also pledged that “Private equity is the only industry where performance related pay is treated as capital gains. Labour will close this loophole.” Labour therefore intend to change how carried interest is taxed. More information on this is likely to follow now that the election has passed. Labour calculate that this change will raise £565 million per annum by 2028/29.

Employment taxes

• While Labour’s manifesto contains a pledge that they will not raise National Insurance, this pledge relates to “taxes on working people”. It is therefore not clear whether Labour consider that this pledge also applies to employers’ NIC.  
• Labour plan to replace the Apprenticeship Levy with a Growth and Skills Levy.

Indirect taxes

• Labour’s pledge not to increase taxes on working people also extended to not increasing VAT.
• Labour have pledged to end the VAT exemption on private school fees and business rate relief for private schools. The Labour manifesto costs this as raising £1.51 billion in 2028/29. 
• A further revenue-raising pledge is increasing the stamp duty land tax surcharge paid by non-UK residents who purchase residential property in England or Northern Ireland by 1%. This is costed to raise £40 million in 2028/29. 

Closing the tax gap

The tax gap

The tax gap is the difference between the amount of tax which is thought to be due and the amount of tax which has been collected. The latest tax gap figures published by HMRC for the 2022/23 tax year showed a tax gap of £39.8 billion, which is 4.8% of the total tax which is thought to be due for the tax year. 

Labour’s manifesto pledges to spend £855million per year on “Investment in HMRC to reduce tax avoidance”, with the intention of raising £5.23 billion in 2028/29 (including changes to non-dom taxation). Labour set out their approach to working with HMRC in their manifesto with the statement: 

“We will modernise HMRC and change the law to tackle tax avoidance. 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...”

According to HMRC’s latest tax gap estimates, 4% of the tax gap, equal to £1.8 billion, relates to tax avoidance. The largest components of the tax gap are underpayments caused by failure to take reasonable care (30% - £12 billion) and error (15% - £5.8 billion). Given the numbers involved, it is likely that at least some of the money to be raised by closing the tax gap will need to focus on reducing error and failure to take reasonable care – as Labour themselves stated in their April 2024 publication on closing the tax gap (see next section). 

Labour’s plan to close the tax gap

In April 2024 Labour published a document titled Labour’s plan to close the tax gap which contains Labour’s threefold plan to close the tax gap by (1) Boosting HMRC compliance activities; (2) Investing in technology transformation (which Labour also says would “improve the customer experience”) and (3) Making legal changes, including “restoring a genuine deterrent to tax evasion and making sure people pay their taxes in the first place”. These points are expanded on below. 

Boosting HMRC compliance activities

Labour expect that their compliance plan would include the following key points:

• Increased staffing on compliance. Labour have calculated that 5,000 additional staff would be needed to raise £5 billion in additional tax revenue.
• Focusing additional resource on segments with the greatest complexity and return, such as larger businesses.
• A focus on offshore tax compliance, with the approach to take on this point to be informed by the findings on the first offshore tax gap estimate, which is due to be published by HMRC after the election period.
• Restoring a deterrent by funding strategically important criminal cases.
• Improving customer service, with Labour noting that poor customer service “means that more and more taxpayers risk making errors in their tax returns”. 

Investing in technology transformation 

Labour comment that their technology investments will include: 

• Investing in digitisation to improve compliance and customer service, such as through pre-population of tax returns and use of email correspondence to communicate with HMRC.
• Longer-term investments to update technology in the department. 

Legislative and regulatory changes

Labour comment that options to help HMRC tackle non-compliance include:

• Requiring a wider range of tax schemes to be reported to HMRC under the Disclosure of Tax Avoidance Scheme rules.
• Strengthening HMRC’s powers to enforce tax payment of tax in an investigation case. 
• Explore whether the tax gap could be further reduced if Deferred Prosecution Agreements, currently only used for corporate bodies, could be applied to individuals for tax evasion. 

Labour and a post-election Budget

Now that the General Election results are in, attention has turned to when Labour might hold their first post-election Budget. Technically, changes can be announced at any point (and it is possible that Labour will make announcements outside of a fiscal event to have effect from the date of announcement). However, the usual practice following a change of governing party is for the incoming government to hold a Budget relatively early (notably called an ‘Emergency Budget’ in 2010), in which the new government sets out its economic policy and can announce their initial tax changes. 

Labour is yet to state when they are planning to hold a Budget, but Rachel Reeves has committed to receiving forecasts from the Office for Budget Responsibility for a fiscal event, which requires 10 weeks’ notice. This would mean a Budget would be held in mid-September at the earliest.