That was authentic anger, Rachel Reeves’s indignation well justified as she thundered in the Commons at the inheritance she has been left. Labour is genuinely outraged at the destruction the former chancellor Jeremy Hunt deliberately inflicted, knowing his party would be out of there for years to come. They did indeed “put party before country”, as she said, by cutting tax without having the funds to pay for their promises. The Treasury’s audit shows her victorious battlefield strewn with landmines: unfeasible commitments for Boris Johnson’s fantasy 40 new hospitals , roads without budgets , every public service burned out and councils everywhere tipping into bankruptcy. This was not mere fecklessness but deliberate sabotage, an act of treason against the country.
That Tory wreckage will stay vividly imprinted in the public memory. All that matters now is how to find the resources to breathe renewal and growth into the national decay all around us. The depth of the dishonesty in this year’s budget meant she made tough cuts in-year: the winter fuel allowance made no sense for pensioners not on benefits. Social care charging caps , endlessly delayed, will not go ahead: the idea needs to be wrapped up in a better future reform. She will pay all public employees the raise they deserve, though this is still behind the private sector. Cutting £3.2bn shared between every cabinet minister’s budget looks too harsh after the starvation years: what “efficiency” savings could there be?
But don’t despair at this revelation of a worse-than-empty Treasury. Wait for Reeves’s autumn budget for her path to growth. Her inbox is flooded with abundant ways to harvest money without breaking her promises on the three main taxes. Billions are suggested by the Institute for Fiscal Studies, Resolution Foundation and multiple other towering authorities, and some she will follow.
Let’s rehearse just a few. The frontrunner is raising capital gains tax (CGT), levied on money earned in idleness from the sale of assets such as rental properties and shares, to level out the discrepancy with the far higher income tax paid on hard work. Dan Neidle , an eminent tax reformer, says Reeves is right not to announce it in advance or everyone will cash in early to avoid it. Why, the IFS’s Paul Johnson asks in his book Follow the Money , is capital gains tax not due on a lifetime of shares, property or antiques, swollen in value but absolved on death? Seeing this coming, the Telegraph dubs that a “double death duty”. Don’t expect them to remind their readers that capital gains is mainly about the wealthy: only 0.5% of people had a taxable capital gain last year.
Reeves is already committed to stopping private equity fund managers misrepresenting their earnings as a capital gain to pay less tax than their cleaners. IFS research shows raising CGT doesn’t kill off investment either. “The rich will flee!” is their allies’ last defence. But they are not as mobile as they pretend, with family roots that resist being dug up. Tired of London, tired of life, they fear getting very bored in these “culturally barren” tax havens, finds Sam Friedman, professor of sociology at the London School of Economics. His team interviewed a raft of the top one-percenters and found none planning to emigrate.
The golden goose has plenty more eggs, with inheritance tax (IHT) paid by just the wealthiest 4% of estates and too easily avoided: why do pension pots, farms and family businesses escape it?
Related: Wealth taxes could raise £10bn to help plug Tory budget hole, say economists
It’s time to charge national insurance (NI) on all income, not just on pay, including on pensions above a threshold. That’s serious money. Exempting the self-employed from NI costs the Treasury £5.9bn, mostly from well-off “self-employed” partners such as City lawyers or private medics. It’s a “deceit”, says Helen Miller, creator of IFS Taxlab , which checks what each tax raises. Pensions tax relief is ripe for reform: high earners get 40% and 45% relief subsidised by the state, while ordinary earners get just 20%.
Reform of council tax, long overdue, would stop the richest in southern England paying less than the northern average. Tax Justice UK, with the admirable Patriotic Millionaires, urges the rich to be taxed more, suggesting “10 tax reforms to raise £60bn for public services and a fairer economy”. Just as a thought experiment, the LSE’s wealth commission shows a one-off raid on wealth above £2m, charged at 1% a year for five years, would bring in £80bn.
So there is money. Excess wealth and income is there for the plucking, and everyone knows it: the public is ahead of Labour in calling for tax rises. YouGov finds most people expected it to happen before the election. Attitudes towards tax changed when the bankers’ crash, Covid and the cost of living crisis reminded everyone how much we relied on the state. A British Social Attitudes survey found 52% in favour of higher taxes, while the Financial Fairness Tracker survey shows more than half of people are happy for spending increases on public services, even if it meant personally paying more tax. Another study found that a majority (64%) said they’d be more likely to vote for a party committed to higher taxes on the wealthiest to invest in the NHS and public services.
This election marked the final demise of the Thatcherite small-state era. The country now has a stronger social democratic impulse than Labour yet dares trust. As the Tories veer rightwards in their search for a new leader, watch them still promise tax cuts despite the total failure of their election bribes.
Related: Reeves scraps social care cap and some winter fuel payments to plug ‘£22bn hole’
The money is there for the taking. Plucking the fatter geese will please most voters, and do no economic harm to Reeves’s hard-earned reputation for stability. On the contrary, finding money for productive capital investment in Labour’s priorities for growth, green energy and a housebuilding bonanza is being welcomed by markets as an economic stabiliser.
Her October budget will define the nature of this government by its early spending priorities. Paying underfunded public employees and the junior doctors their due is the right, and totemic, start. Raising benefits is essential, not just abolishing the two-child cap, but restoring what was stripped from families since 2020 .
The NHS needs £38bn in this parliament, says the Health Foundation , just to keep pace with rising major illness, mainly among older people. Yet children should come first: early years and skills after 16 are the emblematic investment for any country that thinks about future life and growth.
Only the budget will reveal the true character of this government, by how fairly it gets, and how well it spends, the country’s money. The scandalous disarray of the last budget is a low bar to soar above. But beyond emergency repairs, we wait to know the moral nature of Labour’s endeavour.
• This article was amended on 30 July 2024 to clarify that capital gains tax is levied on money earned from the sale of assets, such as rental properties and shares, not on earnings from rents or shares themselves.
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