UK’s Labour Faces Backlash Over Pledge for No Further Tax Rises

(Bloomberg) -- Britain’s opposition Labour party is facing a backlash from its left wing after ruling out wealth taxes and promising to cut business regulations as it looks to shore up its economic credentials ahead of a general election expected next year.

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In an interview over the weekend, Shadow Chancellor of the Exchequer Rachel Reeves said Labour would not propose any tax increases beyond those already committed because the burden is already high enough, as she sought to neutralize traditional Conservative party claims that Labour lacks economic discipline.

It also marked a major shift by reversing leader Keir Starmer’s pledge from 2020 to increase the top rate of income tax. Reeves had also previously said that “people who get their income through wealth should have to pay more.”

The focus on fiscal prudence, with Reeves insisting her rules are “non-negotiable” and the party scaling back its green investment plans to demonstrate borrowing will remain under control, appears to be paying off. A YouGov poll published by The Times Tuesday found that Labour is now more trusted than the Tories on tax.

Reeves told the Sunday Telegraph the party was “very much in favor of wealth creation” and didn’t “see the way to prosperity as being through taxation,” but through business investment and “growing our way there.” She said her spending plans do not require more tax rises.

However, the commitment met resistance from socialist pressure group Momentum, which was influential under failed former leader Jeremy Corbyn, and several left-of-center economists. They are concerned about a lack of funding for Britain’s struggling public services, the Independent newspaper reported Monday, citing a letter by the group, signed by 70 economists and academics.

The economists wrote that Labour’s plans would perpetuate “the economic orthodoxy that has made this country poorer, less cohesive and more unequal than fifteen years ago.”

Tax Proposals

Labour has proposed a £3.2 billion ($4 billion) tax on non-domiciled residents, value-added tax on private school fees worth another £1.6 billion and to abolish a £400 million income-tax loophole for private equity partners. Reeves said the party no longer planned to raise capital-gains tax or the 45% top rate of income tax and would not introduce a mansion tax.

Reeves’ pledge was her boldest yet as the party prepares for October’s conference season ahead of an election that must be held by January 2025. Labour leads the Conservatives by 20 points in the polls but wants to remove any lingering fears that it cannot be trusted with the public finances.

The party will put its plans to the test as early as October after Nadine Dorries, the former Tory culture secretary and Boris Johnson loyalist, quit in protest at Prime Minister Rishi Sunak’s leadership at the weekend.

Her Mid-Bedfordshire seat is now up for grabs. Labour’s shadow secretary of state for women and equalities, Anneliese Dodds, told the British Broadcasting Corp. the party was “in pole position” to overturn Dorries’ 25,000 majority. The Tories lost two of three seats recently contested in by-elections.

Reeves said she planned to remove planning restrictions to make it easier for businesses to build new houses and wind farms, and to invest in clean-energy technology. She is looking to the private sector to boost growth because she is “not going to be able to turn on the spending taps as chancellor,” the Telegraph cited her as saying. “The money is simply not going to be there.”

Momentum said on X, formerly known as Twitter: “This is a political choice to favor big business and the 1% over ordinary people. Shameful.” In the letter letter seen by the Independent, the signatories said they are “concerned” about Labour’s decision to stick with current fiscal rules, which involve spending cuts.

The economists, who include Ha-Joon Chang of the School of Oriental and African Studies in London as well as Kate Pickett and Richard Wilkinson, the authors of the influential book The Spirit Level, urged Reeves to learn from the last Labour government, which “increased spending on services.”

Labour has said its main fiscal rules will be to pay for day-to-day spending with taxes and to have debt falling debt as a share of the economy by the end of the next parliament.

Responding to the letter, a spokesman for the party said: “The Tories crashed the economy, saddling working people with a Tory mortgage bombshell and less money in their pockets. This means an incoming Labour government would have to make tough choices.”

Labour said on Monday that it would ensure hospitals have functioning medical equipment by allowing the National Health Service to buy in bulk.

Using a freedom of information request, Labour estimated that almost 7,000 incidents that threatened the safety of staff or patients may have been caused by faulty equipment in the last five years.

(Updates to add YouGov poll in fourth paragraph)

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