Labour will mount an inheritance tax raid on wealthy “non-doms” under plans to pay for its flagship commitments on schools and the NHS.
Rachel Reeves, the shadow chancellor, said that Labour will raise £2.6 billion a year over the course of the next parliament by closing “loopholes” in the government’s plans to abolish exemptions for people who are not domiciled in the UK for tax purposes.
Jeremy Hunt, the chancellor, used his budget last month to announce that he would abolish non-dom status as he sought to raise money for cuts to national insurance. He also announced an extension of the windfall tax on oil and gas companies.
In doing so he effectively spent the money earmarked for two of Labour’s flagship pledges — free breakfast clubs for primary school children and additional funding for the NHS. Between them the two measures cost £2 billion a year.
Labour will plug the gap by closing a loophole that gives non-doms until April next year to put overseas funds into a trust. Under the government’s plans these funds will be exempt from inheritance tax. Labour said it would remove this exemption, raising £430 million a year.
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The party will also close a provision that gives non-doms a 50 per cent tax discount on any overseas income and capital gains in the first year. This will raise about £600 million.
The issue of non-dom status is deeply political. Akshata Murty, Rishi Sunak’s wife, faced scrutiny after it emerged that she had claimed non-dom status. She subsequently declared that she would pay UK tax on overseas income relating to her £690 million status in Infosys, the IT multinational founded by her father.
Reeves said that Labour will raise a further £5 billion a year by the end of the next parliament by narrowing the “tax gap” — the differences between the amount of money HMRC is owed and the amount it actually receives.
Labour said that the tax gap had widened to £36 billion in 2021-22, £5 billion more than it had been the previous year, as an under-resourced HMRC struggled to collect revenues and manage compliance. The party said that it would invest up to £555 million a year in boosting the number of compliance officers at HMRC by 5,000, increasing productivity and improving the organisation’s “dire” customer service.
While the measures are expected to raise more than £5 billion a year by the end of the parliament, only £2 billion of that money will go to funding NHS appointments and primary school breakfast clubs, with the rest of the money being kept back for other priorities. It gives Labour the potential for further pre-election giveaways on tax and spending.
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Paul Johnson, head of the think tank the Institute for Fiscal Studies, said that the revenues from the tax crackdown are uncertain. He said: “It probably is the case that if you put more money and effort in you will get more back. The difficulty is that it is genuinely uncertain how much that will raise. It is probably worth doing more than it will at the moment. One of the problems is you’re spending uncertain amounts of money which you’re not sure you will raise on a certain commitment.”
He said that the bigger issue is that both Labour and the Tories were committed to public spending cuts in non-protected areas outside of the NHS and education. Neither party has spelled out where the spending cuts — or tax rises to fund additional spending — will come from.
Johnson said: “The actual issues are much bigger than the numbers we’re talking about here both on the spending side and the tax side. In the context of an incredibly challenging set of tax and spending decisions this is all very small beer.”
Reeves said: “I have been clear that everything in our manifesto will be fully costed and fully funded. There will be no exceptions. That is why last month I promised to go through all the government documents in an orderly way to identify the funding streams to honour our commitments to the NHS and schools. That process is now complete and the funding a future Labour government will raise from taking on the tax dodgers will fund more appointments in NHS hospitals, new scanners, extra dentist appointments and free breakfast clubs for all primary school pupils.”
She added: “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. After 14 years in power, the Conservatives have failed to tackle this issue and the tax gap remains unacceptably high. With Labour, things will change. We will take on the tax dodgers because if you make your home and do your business in Britain, then you should pay your taxes here too. The plan we are announcing today will give HMRC the resource it needs to go after those who are avoiding or evading tax, and to modernise the tax office so we have a system that is fit for purpose.
Labour’s list of pledges
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Labour’s tax raid on wealthy non-domiciled foreigners living in the UK and measures to curb tax avoidance are designed to help fund several flagship pledges. The party says it will raise £5.5 billion a year by the end of the next parliament — more than enough to meet spending commitments.
Free breakfast clubs
Not all schools provide breakfast clubs and those that do have to cover their costs by charging parents. Labour says it would ensure every primary school offers a free breakfast club open to every pupil.
Cost: £360 million
700,000 extra dental appointments a year
Labour says the biggest cause of hospital admission for those aged six to ten is decayed teeth. The party is pledging to set up an enhanced recruitment scheme for dentists to provide hundreds of thousands more dental appointments each year. There would be a targeted national supervised toothbrushing programme for younger children in breakfast clubs.
Cost: £109 million
Ending long hospital waits for children
Figures suggest that last autumn about 180,000 children had to wait longer than 18 weeks for treatment and 18,000 longer than a year.
Labour says it would eliminate these long waits as part of plans to conduct two million more operations, scans and appointments by paying staff overtime to clear the backlog in evenings and weekends.
Cost: £1.1 billion
Buying new NHS scanners
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Labour has pledged to fund a new generation of scanners that use artificial intelligence to help diagnose patients.
Cost: £170 million
