Business

What will happen to tax and interest rates under Labour – and how will benefits change?

Business presenter Ian King has answered 21 questions from readers of the Sky News Money blog on what a Labour government means for your personal finances.

How will a Labour government affect benefits?
Marie-Kate

Ian King says…

The expectation is that the UK’s principal disability benefit, Personal Independence Payments or PIP, will change.

Labour has promised an overhaul of the welfare system, taking in Universal Credit as well as PIP, although details are currently scant. The thrust of Labour’s policy, though, will be to try and reduce economic inactivity and get more people of working age into the labour force.

The party’s manifesto said on this: “Labour will work with local areas to create plans to support more disabled people and those with health conditions into work. We will devolve funding so local areas can shape a joined-up work, health, and skills offer for local people.

“We will tackle the backlog of access to work claims and give disabled people the confidence to start working without the fear of an immediate benefit reassessment if it does not work out. We believe the work capability assessment is not working and needs to be reformed or replaced, alongside a proper plan to support disabled people to work.”

More on Labour

One big short-term question is whether the new government will stick with proposals being discussed by the Department for Work and Pensions to bring down the cost of PIP by, for example, replacing some cash payments with vouchers to buy specific treatment or pieces of equipment.

Read more:
Chancellor announces mandatory housing targets
What can we expect from the new Labour government’s first 100 days?

What can the self-employed expect?
Chris Fink

Ian King says…

IR35 – a measure introduced to identify if a contractor is genuinely self-employed or is working as a disguised employee and therefore avoiding tax – was not mentioned in the Labour Party’s manifesto.

However, as it was introduced by the last Labour government in 2003, it would be a surprise, to say the least, were it to be changed.

Prime Minister Sir Keir Starmer speaks during an interview at the Senedd, in Cardiff, Wales, during his tour of the UK following Labour's victory in the 2024 General Election. Picture date: Monday July 8, 2024.   PA
Image:
Prime Minister Sir Keir Starmer. Pic: PA

Why is there an obsession with growth?
One man band

Ian King says…

Growth is, ultimately, what pays for better public services because it generates more tax for the government.

We can’t do without it. The assumption in your question is wrong, by the way. Lots of people have been paying more than their “fair share” for years – and they are probably not who you think they are.

The thrust of taxation policy in recent years has been to avoid raising taxes paid by lower and median earners. The typical taxpayer is actually paying less in taxes, as a proportion of their income, than they were when the coalition government was elected in 2010.

The brunt of extra taxation in recent years has been almost entirely borne by companies in higher corporation tax and by higher earners.

As Paul Johnson, director of the Institute for Fiscal Studies, put it in a column for The Times today: “The broader barrier is that, as the overall tax burden has risen, governments have moved heaven and earth to protect average earners and have piled more and more on to companies, high earners, anyone other than the median voter.”

What is Labour’s plan for landlords?
Kent

Ian King says…

Labour’s biggest and most eye-catching policy on housing was the Freedom to Buy scheme – this proposes to make the current mortgage guarantee scheme, which was due to expire in June 2025, permanent.

As far as rented accommodation goes, Labour’s main proposal was to scrap section 21 notices, sometimes called “no-fault” evictions, which allow landlords to evict tenants without having to give a reason.

There has been an awful lot of speculation that the capital gains tax regime will be tightened to hurt second homeowners, including buy-to-let landlords, but the truth is we genuinely don’t know what Labour plan in this regard.

What will happen to interest rates?
AoJ65

Ian King says…

That will depend on the impact its policies have on inflation and will ultimately be a decision for the Bank of England’s Monetary Policy Committee.

Will Starmer protect the pensions triple lock?
Oldsue

Ian King says…

Labour promised during the election campaign to maintain the triple lock – which ensures the state pension rises each year by whichever is the higher of inflation, average earnings, or 2.5%.

It would be a huge surprise were the new government not to stick to that.

Great British Energy seems like a gimmick – how will it help me?
Donavan, Morley

Ian King says…

That’s a very good question.

We really don’t have much detail on how this organisation is going to operate – only what its aims will be.

Here’s what I wrote about Great British Energy during the election campaign.

Can we expect imminent changes to capital gains tax?
Morgan

Ian King says…

Labour has not categorically ruled out changes to the capital gains tax regime other than with regard to specific measures affecting the private equity industry.

You can read the article I wrote last week on the options the new government has for tweaking CGT here.

Pic: PA
Image:
Will the WASPI generation get compensation? Pic: PA

Will we get Waspi compensation?
Jane (worried) and Maddy

Ian King says…

The biggest development during the election campaign on the pension front was a decision by Labour not to reimpose the “lifetime allowance”, or LTA, which capped the amount someone could save in their pension without facing a punitive tax rate and which was scrapped by Jeremy Hunt, the former chancellor, amid evidence it was forcing the early retirement of professionals such as doctors, dentists and air traffic controllers.

Rachel Reeves initially promised to restore the LTA but abandoned that plan during the campaign. That is not to say tax changes to pensions may not happen. At present, those saving into pensions receive tax relief on contributions at their marginal (highest) rate of income tax – 20%, 40% or 45%.

Many Labour MPs feel this means too much relief is going to higher earners and Ms Reeves herself called for a 33% flat rate of tax relief in 2016. Labour has definitively failed to rule out something similar. It would amount to a stealth tax raid on anyone who pays the 40p and 45p rates of tax.

The Labour Party manifesto said nothing about the Waspi campaign and it is unclear what the party’s approach will be in government.

My expectation is that, given the sheer cost of compensating the Waspi campaigners and the fact that opinions differ as to whether compensation is actually warranted (the Parliamentary Ombudsman says it is, many other experts disagree), Labour will not adopt a markedly different approach from the outgoing government.

Sunak made a claim about tax rises under Labour – but where would they come from?
Sceptical

Ian King says…

The biggest tax we all face in coming years is already known about – Jeremy Hunt’s decision to freeze income tax thresholds until 2028 rather than raise them in line with inflation.

That is going to drag millions of people into either paying income tax for the first time and others into paying the 40p and 45p top rate on some of their earnings.

Labour has made clear it is going to stick to this plan – which was introduced to restore the public finances to some semblance of normality following the twin shocks of the pandemic and the energy crisis caused by Russia’s invasion of Ukraine.

Are all prospects of tax cuts out the window?
RobertWhippy

Ian King says…

Everyone should save, if they can, regardless of whether you think taxes and/or inflation are set to rise. So I’d advise you to do that anyway.

It is hard to see how the new government will be in a position to cut taxes in the short term – it has made clear it sees encouraging growth as its main target and also raising public spending in sectors like education.

Defence is also going to be another key priority following Vladimir Putin’s invasion of Ukraine.

So I would not hold your breath for tax cuts any time soon. If the public finances improve, though, then who knows – and especially as we get closer to the next general election.

How will Labour stop banks shutting off customers?
Margaret from Cleckheaton

Ian King says..

Yes, Labour has committed to addressing this issue.

The banking industry is already rolling out so-called “banking hubs”, allowing staff from several banks to share the same space, helping to fill gaps left by branch closures.

But this is a voluntary scheme, funded by the banks, which is why only 50 or so have opened since the beginning of 2022.

Labour wants to change the qualifying criteria so locations and communities without banks can access face-to-face banking services – and also proposes giving Link and the Financial Conduct Authority, one of the UK’s main financial regulators, powers to speed up the roll-out by identifying areas that need a banking hub.

It is targeting 350 such sites in the life of this parliament.

How much would it cost to scrap the two-child benefit?
Disgruntled

Ian King says…

The Resolution Foundation has estimated that the two-child benefit cap will save the government £2.5bn during the current financial year – which would rise to £3.6bn if applied to all families claiming universal credit.

Labour is committed to raising the levy on North Sea oil and gas producers from the current 75% to 78% – and has earmarked the money raised will go towards funding its wider plans for energy and, in particular, decarbonisation.

It would be ill-advised to raise taxes further. The decisions it has made have already had an impact on investment in the North Sea, as I report here.

And don’t forget, the cap is not just about saving money. It’s also about avoiding awkward newspaper headlines and stories about big families being paid a small fortune in benefits of the kind that embarrassed the last Labour government and angered so many of its traditional working-class supporters in particular.

Can stamp duty discrepancies be addressed?
Croydon Ajay

Ian King says…

Stamp duty is a rotten tax and, if you want to promote growth, scrapping it would certainly be a good way of doing so. But given that Stamp Duty Land Tax brought in £11.6bn in the last financial year, the government is likely to want to keep it in place.

The differing tax takes to which you refer reflect the fact that house prices are cheaper in the North East than in London.

SDLT is very much a London tax – the capital accounted for 36% of all SDLT paid in 2021-22, the latest year for which figures are available.

Homebuyers in the London borough of Westminster alone paid more SDLT than the whole of the North West of England. I doubt those disparities to which you refer will change unless house prices in London collapse and house prices rocket elsewhere.

You are right to point out the pernicious effects of this.

In some London boroughs, primary schools are starting to close, because parents find they cannot live in the capital and raise a family. They’re moving out – reducing demand for London school places in some areas.

Construction workers on a site in London, Friday, Sept. 23, 2022. Britain's new government on Friday announced a sweeping plan of tax cuts it said would be funded by borrowing and revenues generated by anticipated growth, as part of contentious moves to combat the cost-of-living crisis and bolster a faltering economy. (AP Photo/Kirsty Wigglesworth)
Image:
House building is a key policy for this Labour government

How are Labour going to achieve growth?
James85

Ian King says…

The UK’s sclerotic planning rules have been a major drag on growth over the last decade.

If Labour has found a way of obviating those rules then it should generate growth. But bear in mind this is going to cause huge rows as Whitehall orders local planning managers what to do and rides roughshod over them when they don’t co-operate.

Not everyone will like it and especially those who find their views interrupted by, for example, new homes. The same applies to tearing up the rules banning more onshore wind farms.

All other things being equal, it should also be positive for growth, but those who have views of open countryside blighted by new wind turbines may disagree.

Public-owned railways were a disaster before – how will renationalising help?
Arthur

Ian King says…

Labour argues that, in state ownership, the rail network can be more coherent with one “fat controller” type figure in charge to oversee timetables and ticketing.

Bear in mind most of the railways more or less have been renationalised already – the exception being the rolling stock companies, which will remain privately owned.

You are right to point out the shortcomings of the nationalised model – as I did in this article for Sky News back in 2017.

The nationalised model is not a silver bullet – as English and Scottish football supporters to have used Germany’s nationalised rail service during the Euros will testify.

What will Labour do with dividend and corporation tax?
Jonny

Ian King says…

Rachel Reeves is already committed to keeping corporation tax unchanged for the life of this parliament.

But no such commitments have been forthcoming on the taxation of dividends.

And some people fear the worst because Labour has form here – Gordon Brown took away tax relief on the dividends that pension funds received on their investments in 1997 – which contributed to the near extinction of gold-plated “defined benefit” or “final salary” pension schemes in the private sector.

In fairness, Labour can point out that the Conservatives also stripped away protections enjoyed by savers on their dividends.

You can now only receive dividends of £500 on shares or investment funds held outside an ISA. The allowance stood at 10 times that just seven years ago.

The moral of the story is clear – if you hold shares or investment funds which pay dividends, protect them in an ISA, which ensures the payouts will be tax-free.

Pic: PA
Image:
Pic: PA

Will no-fault evictions still be axed?
Elaina

Ian King says…

The legislation died with the last government but, yes, the expectation is that Labour will abolish no-fault evictions.

Haven’t we been here before with housebuilding targets?
P45

Ian King says…

Good question – which reminds me that one of the most dangerous phrases in investment and business is “it’s different this time”.

What genuinely appears to be different is that Labour seem totally committed to sweeping away the planning rules and regulations that stand in the way of more homes being built.

If they can pull this off then, all other things being equal, they will have a fighting chance of completing 1.5 million new homes over the life of this parliament.

The other thing I would say is that this is a hugely ambitious target and so Labour, by making it public, have confidence it can be done.

You can rest assured that Labour will be asked about it a lot towards the next general election.

The political graveyards are littered with those politicians – Harold Macmillan, Conservative prime minister from 1957-1963, is a good example – who made promises on housebuilding they failed to keep.

Rachel Reeves steps out of her car outside Downing Street.
Pic: Reuters
Image:
Rachel Reeves steps out of her car outside Downing Street.
Pic: Reuters

Who will be eligible for the new housing pledged?
Gingernut

Ian King says…

Labour is aiming for increasing housing availability across the board with a mix of both public/social housing and also private sector accommodation – while also looking to stimulate the “build to rent” sector.

It’s not a case of eligibility, as such.

They’re seeking to increase supply in the first instance – get that right and demand will be met.

Pic: PA
Image:
Can anything be done on concert ticket prices?

Can the government sort out the price of concert tickets?
Dad of Swifties

Ian King says…

Labour promised not to increase the rate of VAT during the election campaign.

That is very different from cutting it or making some products and services tax free.

I’d be surprised if it happened. The government needs to raise money, not give it away.

That said, I note that US Congress has recently been talking about tougher regulation of businesses like Ticketmaster, so doubtless parliamentarians on this side of the Atlantic will be watching closely.

Articles You May Like

King’s Speech will be biggest symbol of change Labour hopes to bring
Israel targets 7 October mastermind in airstrike Gaza officials say killed dozens
Trump supporters wear fake ear bandages after shooting
Eden Park record remains as All Blacks beat England
Trump changes ‘humdinger’ of a speech after assassination attempt as he arrives for Republican National Convention