It was at least fast. Moments after the Bank of England raised interest rates to 4.5% on Thursday afternoon, Shadow Chancellor Rachel Reeves took to social media to blame the Conservative Party for the steep rise in mortgage costs. “People will be alarmed by this news,” she tweeted.
“Prime Minister must admit responsibility for the Conservatives’ mortgage fine, which has made many worse off. We need a proper contingency tax for the oil and gas giants now to bring down the cost of living.”
It was very personal. Reeve's endless stream of messages is peppered with pro-business, entrepreneurship and financial responsibility pronouncements, many of which can be taken straight from Gordon Brown's mid-1990s playbook.
This month alone, the hyperactive Leeds East MP — herself a former Bank of England economist — has met with women business leaders to talk about their contribution to growth and has visited local businesses in Mansfield and Gravesend and will fly to New York to speak with business leaders. about why they should invest in the UK.
It's not just Reeves. The entire Labor team, from party leader Sir Keir Starmer down, is on the offensive, trying to convince the business community that the economy will not only be safe in Labor's hands, but actually get better. Starmer has repeatedly stated that the government under his leadership will not «pay its big government checkbook».
Jonathan Reynolds, shadow business secretary, promised the big-name Industrial Strategy Board to partner with business leaders on shared priorities and shelled the factories of companies like BAE Systems and Hyde Global.
At the same time, business more and more wants to work with the party. It was reported last week that a senior political manager from HSBC was seconded to Reynolds' office, following in the footsteps of another NatWest official.
«All of our clients want to have access to what they now see as the future government,» says the managing director of one of the world's largest public relations consulting firms.
«We are inundated with requests for private briefings and meetings.»
It's not hard to see why. After local elections earlier this month that resulted in another round of disastrous results for the Conservative Party, almost everyone believes that a Labor government, or at least a coalition with the resurgent Liberal Democrats, is all but inevitable.
Prime Minister Rishi Sunak may have stabilized the situation, but the Conservatives are still far behind in the polls. Even if the Tory's reputation for competence is steadily restored, the party is far from any inspiring vision of why it deserves a fourth term.
Sir Keir made huge gains in the local elections in May, and Tudor Evans of Plymouth (holding the phone) is one of many new leaders of the Labor Council. Photo: Stefan Rousseau/PA Wire
The problem is that Labor does not offer the sober and safe alternative that they present to the public.
True, they have abandoned the wild far-left radicalism preached by former leader Jeremy Corbyn and his shadow chancellor. John McDonnell. He reneged on commitments to nationalization, massive unionization, and unlimited printing of money to fund higher spending.
But that doesn't mean the party no longer poses a threat to free enterprise. While the language may be sober, when you look at the promises made by Labor, it becomes clear that there are many additional taxes and much more spending in the future.
Worse still, the party will inherit the bleakest economic outlook of any new government in 50 years. He will have little to no money to play with, most of the tax hikes already passed will not deliver the expected amount, and his growth plans are too flimsy to be taken seriously.
The Tories have made a terrible mess of the economy for the last four years. Growth has stalled, inflation has remained stubbornly above 10%, real wages are falling at the fastest pace in a generation, and the economy has barely grown.
But that doesn't mean Labor can't earn a lot. worse — in fact, his program is more likely to turn him into a disaster.
“Growth is the only way to solve this dilemma,” says former chancellor Lord Hammond.
“A booming economy brings in more taxes. The only sustainable way to increase tax revenue is to accelerate economic growth.
“If you try to raise tax rates, you will actually slow down economic growth. And then you get a high-tax, low-growth economy that isn't going anywhere, and that's downright fatal. It's just not where you want to be.»
«We repel the rich»
Labor's tax plans are full of alarmingly simple answers. Once in office, the party plans to eliminate non-resident tax rules that allow foreign nationals to pay tax only on their UK, not global, income. In one fell swoop, a few successful billionaires and heiresses will receive billions of pounds—enough money to fix the health care system, improve education, close budget deficits and pay for a green industrial revolution.
The money the party hopes for has been spent so many times by the Labor Party's front-line workers that it's hard to keep track of them all.
But talk to the experts and they'll know it won't work. “This has been discussed for ages,” says Roary Scarisbrick, partner at Property Vision, a buying agency.
“And I think that any structural here and for the people who are here. And there is a part of those people who live here who are nimble and can leave, which I think would be a shame. The Treasury Department, along with former Chancellor George Osborne, agrees.
“The analysis the Treasury Department did for me while I was there showed that we went as far as we could to keep this from starting to have a negative impact on the economy,” he says.
“They will just choose a place where the tax regime is more favorable.”
To make matters worse, Labor plans to impose restrictions on the purchase of houses by foreigners in the UK, a policy that will make the country even less hospitable. to foreign investors – and, despite its protests, will also do nothing to alleviate the housing shortage.
There are other rattles of the “kill the rich” party. Another easy tax hike would be adding VAT to tuition fees, potentially generating £1.6bn from parents, and possibly another £100m from fees charged to them.
This is more one painless compression of the well. -Off, huh? But again, this will not bring the expected money.
“I think its only purpose is to please the Labor left, who may not feel they are getting much from the leadership of Keir Starmer and Rachel Reeves,” says Tom Klagerty, researcher. director and head of the tax department at the Center for Policy Research.
“In my opinion, this does not make sense as a tax policy. I think it will make very little money, partly because once you start charging VAT on tuition fees, schools will be able to get VAT back on all their resources.
«If tuition goes up another 20 percent, I think you're going to get a big shift in parents not being able to afford it, and a lot of moving students back to public schools, which is an extra expense because that's good.»
Very true. Instead of raising any money, it will end up costing the government more and also putting additional pressure on an already overburdened government system.
Fees for 1,405 private schools
The proposal also risks alienating highly skilled foreign workers and entrepreneurs who still choose to live in an ever-higher-taxed UK.
Trevor Abramson, managing director of leading London real estate agency Glentree International, warns that the imposition of a tax on private school fees will hit foreign buyers buying property near good schools.
He says. : “In the post-Brexit era, this is the exact opposite of what we should be doing. We must lower corporate tax, we must not increase tuition by 20 percent.
“We must be the oasis where all these rich people migrate. Do you know how many other countries have to work for the international elite to invest in their country? Here they come, and we push them away.
“Don't we want intellectuals from all over the world to enrich our educational base? These smart people are investing in their children and investing in this country.»
Capital brings pain 
Increased capital gains will nullify effort Gordon Brown to reform, says Lastminute.com co-founder Brent Hoberman. Photo: Eddie Mulholland
If that doesn't work, the really big change could be a massive increase in capital gains tax. Labor hasn't been explicit about it, but they're making a lot of noise about bringing the tax into line with income tax, which would effectively at least double the tax on the proceeds of the sale of most assets for high earners.
Only seven out of 38 support this approach OECD countries. Experts have warned that this could harm the UK's ability to create businesses, its international competitiveness and hit an already heavily taxed middle class.
Indeed, a survey by consultancy Beauhurst found that 85% of founders would consider moving their companies overseas if tax increases continue, while up to 88% of new jobs also risk being relocated out of the UK. Nearly 90% of founders said it would be harder to attract top talent as a result.
Entrepreneur and investor Brent Hoberman, co-founder of Lastminute during the dot-com boom and then Made.com, warns that if the Labor government raises taxes on capital gains significantly, it will hit UK competitiveness hard.
«I think that raising the CGT to income tax would obviously be something of a shot in the leg if we are trying to get the UK back on track,” he says.
“It's quite clear that most people think it doesn't make sense, and it would be strange if the Labor government, which actually successfully introduced CGT taper easing under Gordon Brown, I guess, would start going that far, way. This positions the UK as a place where capital growth and entrepreneurship are less rewarded than elsewhere.”
1405 CGT UK
In fact, almost no one thinks that the raid will bring in a significant amount of money.< /p>< p>«If you just list the rates, I think it does two things,» says Carl Emmerson, associate director of the Institute for Financial Studies.
“I think it improves equity because it means people don't have an incentive to try to label their income as capital gains when it's actually income.
“So that part would be an improvement. But, unfortunately, it will also exacerbate some of the problems in the current system.
“So, for example, people who make investments and see that their investments only grow in line with inflation will be heavily taxed. It is unclear whether they really have to pay any taxes.”
If that doesn't work, then there's another perpetually popular target of the left, the private equity industry, which now owns huge chunks of the British economy.
The heads of these funds often get a share of their profits, known as «withholding interest» which is taxed as capital gains and not as income. The shake-up could bring in about £660 million.
However, like many of Labor's plans, this forecast assumes that people's behavior will not change, which is especially surprising in a highly mobile fund management industry where executives can be located anywhere in the world.
On top of all this , the party continues to promise additional taxes, especially in the North Sea. But investment is already dwindling and companies are leaving, and this will only accelerate once Labor comes to power.
North Sea oil production is falling
Add it all up and in fact Labour's plans to raise taxes amount to very little. They will generate virtually no revenue, and in many cases even less than what the Treasury is currently receiving.
"Trust me, George Osborne and I ran an incredibly tight financial situation,” says Lord Hammond.
“We looked for all possible sources of taxes. Everything that we could tax without hurting the economy, we did. We've gone through endless taxes to see where we could increase them without causing damage, but there's no point in raising taxes to reduce overall income.
“This is not the purpose of taxation. If the Labor Party starts treating the tax system as just a way of punishing people they don't like, then we're in trouble.”
High labor costs
The argument from Labor is this. , of course, that he has a «growth plan». Britain under the Labor Party will have the highest growth rate in the G7, Starmer said. The only problem is that there are very few details on how this will happen.
There have been many rumors about the green energy revolution and the fit of the industrial strategy being pushed by President Biden in the United States.
Of course, it remains to be seen whether all the subsidies for chipmakers and electric cars are creating real growth or just a series of expensive white elephants (oddly enough, microchip prices are already dropping if anyone needs an early clue).
And yet, without even mentioning it, they are phenomenally expensive. .
Biden's industrial program is worth an impressive $1.2 trillion. If proportional to the size of the respective countries, Chancellor Reeves would have to spend £190bn just to match what the US is trying to do. To put this into perspective, that's almost three times the £70bn layoff scheme. With tax revenues stalled, this simply isn't possible, and Labour's «industrial strategy» is likely to prove ineffective.
Further rules contained in the leaked draft manifest are not credible. For example, plans to give staff the legal right to work from home risk making the UK even less productive than it is now.
Last week's proposal from Rachel Maskell, MP for York Central, that a 10 mph speed limit speed across Britain is an even more troubling sign of the party's priorities.
At the same time, the tax revenue that the party is counting on may well not materialize.
It's not just that taxes on homelessness, raids on private schools, private capital, or higher taxes on capital gains will not bring nothing that could raise the money the party thought it would. At the same time, he may well face a decline in income.
Chancellor Jeremy Hunt has already introduced the most dramatic corporate tax increase in living memory. An additional £11bn is projected to be raised this year and £17bn next year. But — and let's say it politely — it wouldn't be much of a surprise if the Treasury was wrong about that prediction.
2502 Corporate tax
It's enough for a few companies, especially mobile and digital ones, to move to Ireland or the Bahamas, and these numbers could be much lower.
Likewise, hidden taxes introduced by freezing thresholds come into effect this year, and the Treasury is smugly suggesting that it will generate billions of easy revenues by pulling more and more people into the 40 percent tax zone (numbers are already up 50 percent since 2019). year to 6 million, and will grow even more). next few years).
Again, this may not be correct. Many couples with children are already facing a cap rate of 60% plus given child support is declining, and over 70% if they also have student loans, and the same goes for people earning over 100,000 pounds sterling as they lose their personal allowance.
The UK hasn't taxed people like this since the early 1980s. Will people in a flexible, part-time economy still be willing to give the majority of their income to the government, or will they just work less instead? We're going to find out, but it's far from clear that the public will just put up with it.
Overall, even the Office of Accountability estimates that the Treasury will only have about £6.50 on hand. billion to play in the coming years. Even this figure suggests that the duty on fuel will increase in 2027-2028, and successive chancellors usually dismiss this issue. This is a tiny amount of money that leaves little room for error.
1603 Fiscal Target Stock Forecasts
Indeed, it would hardly come as a surprise if revenues dwindle during Starmer's first year in office, leaving a huge hole in the budget and forcing him to cut spending rather than increase it. Worse, Labor will face enormous spending pressure . When the party last formed a government, spending on the NHS increased by 56%. With a current budget of £220bn, this means an additional £100bn will be allocated to general practitioners and hospitals. Even this will probably do nothing more than save the system from a crisis.
The public sector unions will demand a significant increase in wages, and this will be very difficult for the party after such a long absence from power. , resist. The autonomous administrations will ask for more money, as will the Labor mayors in the big cities.
If there is a hung parliament, the problems will be even worse, and the Liberal Democrats will demand an even more expensive climate. policy change and termination of any form of construction project.
Although the Scottish National Party may well be in a sorry state, it will still have a decent number of MPs after the election (even if it is less than the current 45), and it will demand more cash for Scotland as a floor price for Sir Keir's transfer to Downing Street. , 10.
No one will vote for a return to austerity, and they won't like it being forced on them. The Conservative Party has already increased taxes and spending significantly over the past five years, but Labor will be under enormous pressure to go even further.
Sir Keir has abandoned Jeremy Corbyn's far-left radicalism, but it will be difficult for him to form his own party&# 39. The numbers add up. Credit: Jonathan Brady/PA Wire
It's unlikely that living standards or GDP will improve as a result.
«None of these measures are growth-oriented,» says economist Julian Jessop.
“The best you can say is that they might get a little more revenue, but even then that's not certain. They may be popular in a way, or give people a warm, fluffy feeling, which is good for Brits and bad for foreigners, but neither strikes me as revolutionary.“Anything that increases the tax burden is bad for growth. Anything that makes real estate development less attractive by interfering with the market on the demand side rather than the supply side, all of these things will have a negative effect on growth.”
Last fall, Liz Truss and its short-lived chancellor, Kwasi Kwarteng, discovered how quickly and violently the markets can react when trust evaporates.
Starmer and Reeves are hard at work to convince businesses and voters that they can be trusted with the economy.
Yet the reality is that the numbers don't add up, plans to revive growth are pointless, and there will be enormous pressure on the government to increase tapping spending — forcing the Bank of England to start printing money again if necessary.
< p> It will be as chaotic and disorderly as the Labor government of the 1970s, and with all the encouraging wording, the catastrophe will end quickly. In the darkest days of last year's crisis, the UK was faced with rumors of help from the International Monetary Fund. It could very easily happen again, but this time it will be Sir Keir Starmer desperately trying to clean up the mess.
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