The impact of the budget on tax recruitment is apparent. March 2024 was the record month for tax vacancies going back to January 2019, beating even the peak post pandemic months in 2021. At the same time, in a recent report featured in Bloomberg, published today, the UK is set to see 9,500 millionaires repatriate away, which is more than any other country globally, with the exception of China. While Starmer has stated that there will be no changes in taxation in regards to VAT, income tax or NICS, the assumption is, the tax take will need to rise. Key areas which are already causing ripples include:

  • Changes to Non-Dom rules (hence the flood of HNWs leaving)
  • Changes to charitable status on private schools
  • A new windfall tax on energy companies

However, with Non Doms leaving and private schools in some cases closing already, others reporting enrolment down over 20% from September, it is clear that the revenue these will generate will be below forecast. Looking ahead then, how will Labour balance its books?

With quantitative easing now a thing of the past, the Government can no longer rely on the Bank of England to finance its shortfall, which means that any borrowing is subject to the scrutiny of the money markets. And as Truss found out, if the markets don’t like the numbers, the bond markets will react accordingly. Labour’s policies if implemented, require an increase in spending of possibly up to £50 Billion, where the total in tax generated at the moment is approx £800 Billion, meaning an increase of over 6% overall – so substantial.

What does that mean? Tinkering around the edges won’t cut it. With VAT, Income tax and NICs ruled out, this doesn’t leave many options. Hence, in terms of ways in which tax could be raised to meet budget shortfalls, the following are logically likely to be discussed:

  • Capital Gains Tax – this is charged currently at 20%. If this was raised to say 30%, that would mean an extra £8 billion in tax generated – or changing the relief on CGT to widen the net.
  • Corporation Tax – already raised to 25% on profits over 250k, but this could be raised further potentially – already there are proposals for windfall taxes in energy
  • Council Tax – regrading bands (as has already been done in Wales) to enable Councils to collect more cash locally

Looking ahead, given the cost of living crisis combined by the commitments by Government to not increase taxes on working people. In practice, it is easier to tax businesses, property and transactions, as they must be reported and avoidance is hard. One thing I expect to see happen as part of that, is a move to clamp down on tax avoidance, specifically on IR35. Already we have seen contractors in media being taken to court where the tax authorities have openly stated their willingness to go to court, in order to clarify on what the rules actually are. Mindboggling. Parliament passes law, which is so opaque, that no one actually knows what the rules are, so to get clarity, the tax authorities take people to court. A good time to be a tax lawyer maybe? Or a recruiter for one!