Sir Keir Starmer and Rachel Reeves have reportedly abandoned their controversial plan to hike income tax, instead preferring to drag thousands of workers into higher tax brackets.
Sir Keir Starmer and Rachel Reeves have reportedly scrapped their controversial tax raid plans. (Image: Getty)
Sir Keir Starmer and Rachel Reeves have reportedly scrapped their previously controversial plans for a manifesto-breaking rise in income tax. The surprise decision was disclosed to the Office for Budget Responsibility on Wednesday afternoon, as reported by the Financial Times.
Instead of the contentious tax hike, the Treasury is now considering reducing the thresholds at which people start paying different rates of income tax. Extending the freeze on income tax thresholds, initially introduced by the Conservatives, was already one of the options on the table for the upcoming Budget. The newspaper revealed that a “smorgasbord” of smaller measures is currently being explored.
Kemi Badenoch, the Conservative leader, took to X to voice her approval of the reported U-turn, stating it was “good (if true).” However, she added, “But one retreat doesn’t fix a Budget built on broken promises. Reeves must guarantee no new taxes on work, businesses, homes or pensions – and she should go further by abolishing stamp duty.”
Chancellor drops “exit tax” plans amid millionaire exodus fears
The income tax U-turn comes hot on the heels of Ms Reeves abandoning plans for an “exit tax” on the wealthy, fearing it could trigger a mass exodus of millionaires. The Chancellor had been poised to impose a new levy on entrepreneurs moving their money out of the country in the Budget, but has now ruled out the move after conceding that high net worth individuals were likely to flee in droves before the charge was implemented.
Budget expected to deliver a series of tax rises
The Budget, set to be announced on November 26, is anticipated to unveil a series of tax rises. The climbdown on an “exit tax” is likely to disappoint MPs on the left wing of the party who have been demanding more wealth taxes.
A source close to the Chancellor said: “This is a pro-business Government which is building on the progress we’ve already made to strengthen the UK’s position as an attractive investment prospect for the best and the brightest across the world. Introducing an exit charge would risk signalling that the UK is less welcoming to entrepreneurs and global talent, and that’s not something the Chancellor wants to do.”
Britain’s current capital gains tax rules for emigrants
As it stands, emigrants can sell their assets in Britain without incurring capital gains tax (CGT), which is levied at a rate of between 18 and 24%. An “exit” or “settling up” tax would have forced them to pay the charge if they left the UK, aligning them with the current rate of CGT on British residents. The move would have also brought Britain in line with other European countries, including Germany, Norway, and Belgium, which have all recently imposed more stringent settlement taxes.
Sir Keir Starmer and Rachel Reeves have reportedly scrapped their controversial tax raid plans (Image: Getty)
£2bn tax windfall dashed amid business backlash
Ms Reeves had reportedly hoped to raise £2bn from the change, which would have helped fill a £30bn hole in public finances. However, she has bowed to warnings that the move could prompt business founders to sell up early or avoid launching a company in Britain altogether. Rumours of an exit tax sparked panic among some of Britain’s most successful start-ups and investors, who claimed it would hold them to ransom.
Last week, 150 business leaders wrote to the Chancellor, cautioning her against the tax. They argued that it would “not only tell founders that their ideas and innovations aren’t welcome, but that they should either get out early or not come at all.”
Concerns mount over wealthy individuals fleeing the UK
There are already growing concerns that a large number of wealthy individuals are fleeing the UK, fuelled by Labour’s decision to tighten inheritance tax rules and abolish non-dom status. Figures from Henley and Partners, an advisory firm, predict that a net 16,500 millionaires will quit Britain in 2025, up from 10,800 last year. It is estimated that the UAE will gain 9,800 millionaires this year, and Switzerland will gain 3,000.
