OPINION - Rachel Reeves is finally in the spotlight — but what if her sums don't add up?

General Election campaign 2024

It’s finally Rachel Reeves’s week after a lot of Keir-first communications from Labour.

“I can see Rachel smiling,” noted Sir Keir Starmer indulgently at the manifesto launch last week. “Because she’s done all the costings.”

“Too right,” might well have been the thought that flashed through Reeves’s rigorously coiffured head. On social media and billboards across London, she is pictured in a stem black jacket — a symbol of Labour’s pitch for economic stability and her confident progression as the first woman to hold the chancellor’s job.

In many ways, this totemic image of rectitude makes Reeves even more exposed than her boss to questions about how the fuzzy maths of a likely incoming government’s tax and spend plans add up — and what happens if they don’t.

It is, after all, her maths and her decision to accept a stringent corset on spending introduced by the Tories — namely that overall debt should fall year on year as a proportion of GDP by the fifth year of official forecasts. That means that Labour will rely on a spurt of growth or tax rises. And life in government is always more expensive than parties’ carefully trimmed manifesto projections.

Having ruled out tax rises on income tax, national insurance and VAT — and answered Tory charges Labour might impose capital gains tax on sales of primary homes (which would hit older voters intending to downsize) — Reeves’s taxes are likely to be piecemeal and stealthy.

One option is keeping tax thresholds at the same level even as growth and wages rise and inflation eats away at incomes, which pulls more people into higher tax brackets. In fairness, this is happening already under Conservative plans, but Reeves is unlikely to reverse or mitigate a valuable source of revenue.

Another is the non dom tax, slated to raise over £6.6 billion in 2028-29.

The full-fat version of this in the manifesto includes draining the foreign assets of wealthy non doms, held in trust funds outside the UK. Given that most of this group is mobile and effective at inheritance tax planning, it feels highly unlikely that enough of them would remain in the country when it could seriously affect their estates.

So the likelihood is that either Reeves sticks to her guns and less money comes in than she has predicted, or the policy is softened or circumvented.

A similar calculation applies to imposing VAT on private schools, a policy popular with Labour’s grassroots. Predicting how many parents decide this is the straw that breaks the back of family finance is hard. But the sector has already had massive inflationary cost rises. The more parents opt out (or do not start opting into private schools), the less revenue for Labour.

And with a maximum predicted income of £1.6billion and extra costs of educating pupils who leave private schools in state schools, means this won’t materially help public finances.

So Reeves might feel obliged to revisit her earlier enthusiasm for curtailing pension tax relief for those with bigger pension pots. This is sensitive area for Labour, which insists it has “no plans” to do so. But then, the likely next chancellor certainly did advocate the policy when she was shadow work and pensions secretary.

Ditto capital gains tax, while ruled out on primary homes, could be charged at a higher rate than at present on second homes — and on other profits, hitting business owners and entrepreneurs, who make part of their wealth from assets disposal, rather than salaries.

That is the danger zone for Labour’s message that it supports “wealth creation”. As one head of a London asset management firm says bluntly: “I don’t see why anything she says will move the dial for the UK as an investment zone and quite a lot of measures here that would make investors look elsewhere for opportunities and write-offs.”

So Reeves will have to choose stealth tax raids carefully. Raising levies is easy. Keeping business, investors and the internationally wealthy onside or even in the UK as you do so is the hard part.

Anne McElvoy is Executive Editor at POLITICO

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