Rachel Reeves vows to target £174bn of tax reliefs and replace business rates

Shadow chancellor Rachel Reeves today vowed to target £174billion of tax reliefs – but tried to quell fears Labour will hike income tax.    

Ms Reeves unveiled a sweeping review of reliefs in her speech to conference in Brighton that could hit pensions, private schools and even the cost of children’s shoes.

However, she insisted that Labour has ‘no plans’ to increase income tax, despite Keir Starmer setting hares running by stating the move is not ‘off the table’. 

Meanwhile, Ms Reeves said the party will replace business rates. In a first step, it would hit tech corporations by raising the digital services tax from two per cent to 12 per cent and use the £2.1 billion raised to subsidise the bills of high-street traders.

Over time the rates would be phased out and replaced with a property levy.   

‘If we were in government today, next year we would freeze business rates and increase the threshold for small business rates relief.

‘That would give a temporary fix to this problem and we would fund that by increasing the digital services tax to raise that money, to cut rates for high street and smaller businesses.’

In future, the funding for business rates cuts would come from the global minimum corporation tax being championed by US president Joe Biden.

Ms Reeves told BBC Radio 4’s Today: ‘I have set out clear fiscal rules, that we will pay for day-to-day spending with tax receipts and that we will get our debt falling as a share of our national income.

‘I will not make a commitment I can’t keep, I will not make promises that I cannot keep.’ 

Labour argues that, with more than 1,000 reliefs in place, the system is ripe for reform. Private schools would lose their charitable status to raise around £1.7billion for the state sector. 

The sector has warned it could face collapse if the tax break is removed, forcing more than 600,000 children into the state sector. 

But the exercise will go far wider. Pension tax relief as well as the inheritance and married tax allowances could all be targeted. Even the VAT exemption on children’s shoes will be reviewed.

Labour sources said the only tax break certain to remain is the VAT exemption on food. In total tax reliefs are estimated to be worth £174billion a year. 

Ms Reeves said: ‘There are hundreds of different tax breaks. Some are important but too many simply provide loopholes for those who can afford the best advice. For businesses they create extra layers of complexity to navigate and added together they cost more than our entire NHS budget.

‘We will look at every single tax break. If it doesn’t deliver for the taxpayer or for the economy, we will scrap it.’  

Veteran Tory MP Sir John Redwood said Labour appeared to be heading ‘straight back into tax bombshell territory’. 

He added: ‘Labour’s plans would be disastrous. They are reaching for higher taxes, as they always do.’ 

Ms Reeves has confirmed she is looking to increase capital gains tax to target ‘people who get their incomes through stocks and shares and buy-to-let properties’. 

She had tried to rule out a Labour income tax rise, telling The Sunday Times: ‘I don’t have any plans to increase the rates of income tax.’ 

But she was immediately overruled by Sir Keir, who told the BBC’s Andrew Marr show: ‘We are looking at tax – nothing is off the table.’ 

In a round of interviews this morning, Ms Reeves again tried to kill off the concerns about income tax.

Ms Reeves told Times Radio: ‘Keir and I are both very clear, we have no plans to increase income tax and neither of us want to increase income tax, it is not on our agenda.

‘The only people who are increasing taxes for working people are the Tories with their jobs tax that comes in next year that hits ordinary working families and struggling businesses.

‘That’s not our approach, we would ask those with the broadest shoulders – particularly those who get their incomes not from going out to work but from stocks and shares and buy-to-let properties.

‘But Keir and I are not planning to increase income tax, we are both very clear about that.’

In her speech to the conference today, Ms Reeves set out plans for a new ‘Office of Value for Money’ to scrutinise government spending decisions before funding is issued.

Mike Cherry, chairman of the Federation of Small Businesses, said the intervention on rates was a ‘welcome call to action that would take more small businesses out of the regressive rates system’.