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Britain’s Conservative and Labour parties ended the week scrambling to quell confusion over their tax policies in the wake of Wednesday’s Budget.
Tory ministers were accused of creating a muddle over chancellor Jeremy Hunt’s ambition to eventually scrap employee national insurance contributions, which Labour claimed would create a £46bn fiscal hole.
Labour MPs, meanwhile, warned that Rachel Reeves faced a “challenge” in finding new ways of raising revenue to fund a string of spending commitments, after Hunt “nicked” the party’s flagship fiscal policies of scrapping the non-dom tax regime and extending a windfall levy on oil and gas companies.
Both Labour and the Tories are at pains to style themselves as the UK’s party of fiscal rectitude, with a clear, long-term economic plan. But the questions that remained over these two areas of tax policy threatened to undermine their narratives.
The chancellor said in his Budget speech on Wednesday that he wanted to end the “unfair” system under which workers face the “double taxation” of income tax and national insurance contributions and confirmed afterwards that his intention was to end the latter entirely, although not “any time soon”.
However, in subsequent broadcast interviews, ministers gave mixed messages about the policy. While City minister Bim Afolami reiterated that the Tories wanted to “eliminate” national insurance, work and pensions secretary Mel Stride on Thursday cast doubt on the plan by confirming only that the government wanted to “bring national insurance down” in the “next parliament”.
On Friday Gareth Davies, exchequer secretary, said the government wanted to “remove the unfairness” of national insurance altogether, but said the “long-term ambition” could take “several parliaments”.
Davies also left open the door to the levy being merged with income tax, telling Sky News: “We keep all these things under review”.
The Liberal Democrats lambasted the Tories for a lack of clarity. “The government’s half-baked plan to abolish NICs has descended into complete chaos,” said Lib Dem Treasury spokesperson Sarah Olney, as she accused ministers of trying to throw the matter “into the long grass” to avoid addressing the question of how much the policy would cost.
A Treasury official said it was “nonsense” to suggest there was confusion over the government’s “long-term ambition to end the unfairness of double taxation”, adding that “no one is watering down” the plan to end employee national insurance contributions over time.
Meanwhile on Friday Labour MPs warned that Reeves faced a potential headache working out how to plug the fiscal hole in her own plans.
Labour was counting on the abolition of non-dom tax status to raise £2bn of revenue for a series of spending commitments, including support for the NHS and breakfast clubs for primary school children. Hunt instead announced the move in his budget, publishing documents that suggested it would raise more than £3.6bn a year.
The government’s extension of the energy levy — another Labour policy — will raise more than £1bn in 2028-29 according to Budget documents. While this cuts a further hole in the opposition’s spending plans, Labour had planned to couple its extension with further reforms that it said would raise a total of more than £10bn over a five-year period.
Labour MP Dame Angela Eagle, who sits on the Treasury select committee, said Reeves would find a way to plug the hole, but warned: “It’ll be an issue.”
There is “always a lot of leeway in a budget as large as the UK’s”. Eagle added, but cautioned: “Will it be easy? No it won’t.”
A Labour shadow Treasury adviser claimed Reeves’s team had already “gamed out” the potential for Hunt to scrap the non-dom policy and extend the windfall tax, and was therefore “not surprised” by the moves.
“The government has changed its spending plans. We’ll change our plans accordingly. That work has started now. We’ll set our plans in a responsible, orderly manner,” the Labour insider added.
But the two parties’ battles over tax policies left far bigger questions about the future of the public finances unaddressed, warned Stuart Adam of the Institute for Fiscal Studies.
He said the value of the policy on non-doms, for example, was “small beer” compared with the challenge of getting the UK’s public debt ratio falling over the medium term.
“These are interesting political questions for the manifestos, but they are dwarfed by the huge questions the two parties are avoiding on what will happen to public services and tax and borrowing after the election.”
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