Chancellor John Healey, if a Labour government takes power, would face the challenge of boosting fiscal headroom to fund public services and deliver on manifesto pledges, all while adhering to their commitment not to raise income tax, VAT, or National Insurance.
BBC Verify might identify several potential avenues for raising revenue, many of which Labour has either hinted at or explicitly proposed:
Here are four ways Labour could raise money without hiking income tax:
1. **Align Capital Gains Tax (CGT) with Income Tax Rates:** Currently, CGT rates are significantly lower than income tax rates, particularly for higher earners (10% or 20% on most assets, compared to 20%, 40%, or 45% for income). Labour could argue that it’s unfair for “unearned” income from assets to be taxed at a lower rate than “earned” income from work. Aligning these rates, even partially, or reducing the annual tax-free allowance, could generate substantial revenue and fit within a “fairness” narrative, targeting wealthier individuals who disproportionately benefit from capital gains.
2. **Abolish or Further Restrict Non-Dom Tax Status:** Labour has already committed to abolishing the current non-domiciled tax status, which allows individuals whose permanent home (domicile) is outside the UK to avoid paying UK tax on their overseas income and gains if they do not bring it into the country. While the current government has also announced reforms to this system, Labour’s proposals could go further, aiming to bring more foreign income and gains into the UK tax net and generate significant revenue, framing it as closing a loophole for the super-rich.
3. **Extend or Increase Windfall Taxes on Energy Companies:** The current Energy Profits Levy (EPL) on oil and gas companies is set to expire. Labour could extend this levy beyond its current end date or increase its rate, arguing that energy companies are still making exceptional profits from elevated global prices, especially given ongoing cost-of-living pressures for consumers. This move would be politically popular with many voters and align with Labour’s stance on ensuring large corporations contribute their “fair share” during times of economic strain.
4. **Impose VAT on Private School Fees:** This is a clear and stated Labour policy. By removing the charitable status that currently exempts private schools from paying VAT on their fees, the government would apply the standard 20% VAT rate. This measure is designed to raise billions of pounds, which Labour has earmarked for improving state education, and is presented as ending an unfair tax break for the wealthy. It’s a targeted tax change that avoids a broad-based consumption tax hike but impacts a specific service used primarily by higher-income households.
