The attack threatens to be five-pronged: increased capital gains and inheritance tax; chopping individual savings account (Isa) allowances; further limiting the tax advantages of saving for a pension; and forcing pension funds to invest in UK assets that may not offer value for money.
None of these measures has yet been confirmed and is for the moment merely speculation. The only tax-raising measure that appears so far to be fully nailed down is an increase in employers’ National Insurance. That is arguably a breach of Labour’s manifesto commitments, but it does at least have the merit of raising meaningful sums of money.Â
As for the rest, the plan seems to be to make up the numbers with lots of little measures that individually won’t raise a great deal of money but collectively could add up to a significant sum.
It is the little measures, however, which tend to cause the greatest public outcry – think of George Osborne’s infamous pasty tax. They also tend to be the ones with the greatest behavioural consequences.
To Treasury officials, it’s all about clearing up perceived anomalies in the tax system; they’ve long had their eyes on savings tax breaks, and in Reeves they seem to be pushing at an open door. What do they imagine will happen if they reduce the incentives to save? Yes indeed; people will save less.
The political justification is that the tax incentives disproportionately benefit higher earners and are therefore socially unfair.
Why, for instance, do higher rate taxpayers get 40pc and 45pc tax relief on pension contributions, whereas basic rate taxpayers only get 20pc? Why should higher earners stand to gain far more from the tax-free lump sum than average or low-income earners?
Reeves has posed such questions in the past. The Chancellor’s inner class-warrior is screaming for action.Â
Levelling down rather than up is set to become the order of the day. The prudent are to be punished, and spend-now profligacy given free rein.
As it is, just 10pc of taxpayers – those with the highest incomes – are responsible for 60pc of all the income tax collected.