Labour’s economic plans explained as Rachel Reeves announces tax dodge crackdown

Labour’s Rachel Reeves has made economic growth the party’s priority and crack down on tax dodgers

Shadow chancellor Rachel Reeves said a crackdown on tax avoidance could raise £5 billion a year by the end of the next Parliament (Stefan Rousseau/PA) (PA Wire)

Labour’s shadow chancellor Rachel Reeves has outlined her party’s plans to fund key policies by pursuing tax dodgers and further tightening the rules around ‘non-doms’ in the UK.

Ms Reeves says the proposed changes would enable a Labour government to provide vital funding to the NHS, as well as fund its policy on breakfast clubs for primary school children.

It marks the latest economic pledge from the party, which has moved to make its platform of policies more concrete ahead of an expected late-2024 election.

Last year, the shadow chancellor outlined her vision of ‘securonomics’, where the UK is protected against overseas pressures such as Brexit, the war in Ukraine, and Covid. This approach also sees the government embracing the private sector to promote economic growth.

This is a departure from Labour’s approach under Jeremy Corbyn, which ran on an economic policy platform of progressive, radical tax reforms in two general elections. Ms Reeves is instead focusing on relatively small-scale changes to begin with.

The party’s current approach is more often compared by experts to that of Tony Blair during his tenure as prime minister from 1997 to 2007. The former prime minister’s tax changes were seen as more contained, and generally successful at achieving a moderate redistribution of wealth.

While Labour under Sir Keir Starmer has yet to release a manifesto spelling out its economic policies, Ms Reeves has shared several key plans that her party would implement if it came to power.

Here’s a breakdown of some of Labour’s key economic pledges:

Cracking down on tax dodgers

Ms Reeves says Labour’s plan to recover funds lost to tax avoidance should boost government funds by £5.1bn a year. The shadow chancellor points out that in 2021/22, the gap between tax owed and what was collected by the government was £36bn.

The plans include boosting the number of compliance officers by up to 5,000, increasing the number of investigations and the HMRC’s ability to tackle fraud and collect tax.

“At a time when working people in Britain are being asked to pay more in tax because of the Conservatives’ economic failures, it is wrong that a minority continue to avoid paying what they owe,” said Ms Reeves.

Tightening non-dom rules

While chancellor Jeremy Hunt announced the Conservatives’ plan to scrap the controversial ‘non-dom’ tax status in March’s spring Budget, Labour has pledged to go further.

Ms Reeves has said that the government’s plan for non-doms currently in the UK to move to the new system suffers from ‘loopholes’, which a Labour government would close. She says the proposed changes would raise £2.6bn over the course of the next Parliament, £1bn of which would come in the first year.

• Related: What is non-dom tax status and how do Labour want to change it?

A ‘fiscal lock’ for economic stability

One of Ms Reeves key economic policy measures is the introduction of a ‘fiscal lock’ which would introduce a legal guarantee that any fiscal changes made by government would be reviewed by economic experts.

This is seen a direct response to Liz Truss’ disatrous ‘mini-budget’, which introduced radical tax-cutting measures that were very quickly undone. The economic repercussions felt on the economy from her and then-chancellor Kwasi Kwarteng’s fiscal event are still being felt today.

Ms Reeves said: “A Labour government will not waver from iron-clad fiscal rules, nor play the Tory game of undermining our economic institutions.

“We will protect the independence of the BoE, the OBR and our civil service.”

Retain current personal tax and corporation tax rates

In a major break from Mr Corbyn, Sir Keir has indicated that he does not intend to increase the top rate of income tax, nor reduce corporation tax.

“We have no plans for a wealth tax,” Ms Reeves said.

“We don’t have any plans to increase taxes outside of what we’ve said. I don’t see the way to prosperity as being through taxation. I want to grow the economy.”

This position has come under fire from some sides that were hoping Labour under Sir Keir may pursue a policy of higher taxation for the top 5 per cent of earners, as this was the leader’s first pledge during his 2020 leadership campaign.

Longer fixed-deal mortgage rates

Mr Starmer has said he wants Labour ‘to be the party of home ownership’, promoting a vision to build 1.5 million homes and make securing a mortage easier for younger generations.

Putting policy behind this vision, Ms Reeves announced Labour’s plan to introduce 25-year fixed-rate mortage deals across the UK, allowing people to secure homes with smaller deposits and lower monthly repayments.

Crucially, Ms Reeves says it would not be down to the taxpayer to underwrite lenders to offer this, but wanted the industry to help facilitate the change.

Closing private education tax loopholes

Labour has also pledged to close a tax break loophole that allows private schools to avoid paying VAT on fees. The party has outlined a redistributive vision to take the government funds lost from this and apply them to improving state schools.

However, some critics say this could see private school fees increase by 20 per cent, meaning less parents would be able to afford to send their children to these institutions.

Already regarded as highly-inaccessible, with some fees reaching as high as £40,000, the move would likely see more parents opt to send their children to state schools instead.

Investing in green initiatives – but not by £28bn

In February, Labour was made a controversial U-turn when the party revealed its intention to ditch a pledge to spend £28bn annually on green initiatives, reducing the amount by nearly half.

Announcing the plan in 2021, Ms Reeves pledged to be the UK’s “first green chancellor”, saying the money would go towards initiatives such as renewable energy production, home insulation and tree planting, whilst also creating hundreds of jobs.

The U-turn was criticised by environmental campaign groups, unions and some in the energy sector. Responding to the news, Paul Johnson, director of the respected Institute for Fiscal Studies, said: “what is most remarkable about this pledge is not its scale, nor its affordability.”

“It’s the fact that it is the only substantial spending pledge that Labour has made.”

Defending the move, Mr Starmer said the party had to reassess its spending power after Liz Truss “crashed the economy” during her time as prime minister.

“Something had to give if we were going to be within our fiscal rules and to achieve clean power by 2030,” Ms Reeves said.