Starmer refuses to rule out raising capital gains tax
Kiran Stacey
Keir Starmer has been out on the campaign trail this morning, taking part in an arts and crafts session with primary school children to promote his party’s new policy of funding 100,000 extra childcare places.
That policy is one of a number of manifesto commitments that are being funded by specific tax rises. However the problem for Starmer if he gets into Number 1, as Paul Johnson of the Institute for Fiscal Studies has repeatedly argued, is that existing levels of government spending already need substantial extra funding, whether through taxes or borrowing.
Asked about this by journalists following him on the campaign trail, the Labour leader said the gap could be filled with extra growth. He said:
I know what the experts and commentators are saying, and what underpins what they’re saying is that you can’t carry on like this without a plan for growth.
It is always tempting for a government to go to tax and spend, but I’m not going to pull those levers. We don’t intend to pull those levers. We want to go to the lever marked growth.
Tellingly however, he did not deny his party is considering a capital gains tax rise if it wins the election – for the second time in two days. The Liberal Democrats say they would raise more than £5bn from raising capital gains tax. (See 12.13pm.)
Starmer also insisted Labour would not “go back to austerity”, despite projections showing that current spending levels would mean heavy cuts to unprotected departments during the next parliament.
Key events
Farage dismisses Braverman’s suggestion he should join Tories – but says she’ll be welcome in Reform UK after election
Ben Quinn
The Reform UK leader Nigel Farage says he will tell Suella Braverman and Robert Jenrick “we will love to have you” once Reform UK has established an “electoral beachhead” in the House of Commons.
Speaking at his press conference this morning, Farage said:
If you think the last four years have seen the Conservatives engage in a very public civil war. I would suggest, after an election which they are going to lose heavily, then you have not see anything yet …
Once we have established the electoral beachhead in the House of Commons, of course we will say to Suella Braverman and Robert Jenrick ‘we look forward to having you’ and I look forward to it very much.
Farage was responding to Braverman, the former home secretary, telling the Times that her party should embrace Farage. (See 9.26am.)
Farage also said he had written to the British Polling Council to complain about what he described as the “dishonest practices” which claimed were underestimating the strength of support for his party.
“There is a very misleading opinion being given to the British public as to what is going on,” he said, complaining that there was a lack of consistency in term of methodology. He went on:
One very well known polling company will say: how do you intend vote? and it will be Labour, Lib Dem Conservative and Greens – and then other. If you then take the trouble to go other you will find a list of parties I have never heard of and the Reform will be there. So if you don’t prompt for Reform you come out at 12%. One of the other practises is to re-weight the undecided voters back to the 2019 general election in which this party did not stand.
The true picture should show that Reform UK was consistently at 16 or 17%, he claimed.
The Guardian’s poll tracker currently has Reform UK on 11.9%.
A reader asks:
Farage said that the Treasury should stop paying interest on it’s reserves. [See 1.35pm.] What does that mean and what are the implications? Is it mad?
Not entirely. Chris Giles, the chief economic commentor at the Financial Times, has proposed a version of this idea, although he argues that it would free up around £23bn for more public spending, not the £40bn quoted by Reform UK. This is how he explained it in an FT column last week.
At present the BoE pays 5.25 per cent interest overnight on the money it created to buy government bonds under multiple waves of quantitative easing since 2009. It still holds roughly £700bn of bonds that were purchased and they earn a return of about 2 per cent. Netted off, the annual interest rate loss is around £23bn a year, a little shy of 1 per cent of GDP.
The central bank pays 5.25 per cent on reserves so that it can set the short-term policy interest rate at that level. It is effective, but not the only way to control short-term rates.
Instead, it could require banks to hold a fixed amount of money without interest, paying 5.25 per cent only on a small part of the reserves. Such tiering is used in a modest form by the European Central Bank, in a more substantial form in many emerging economies and was admitted to the BoE’s toolkit when it was thinking about setting a negative interest rate earlier this decade. It carries no threat to independent monetary policy and would limit the fiscal consequences of monetary policy decisions, arguably enhancing independence. The beneficial politics of such a move are obvious. If the BoE tiered reserves, saving some of the £23bn annual cost, it would lower measured public spending (net interest payments), allowing a new government to increase spending in other areas without raising measured taxes or borrowing. The opacity of the mechanism might be bad economics but it would help the politics: it is better to lack transparency in government than to underfund public services.
In his column Giles argued this was a policy Labour should adopt. In a series of posts on X, he revealed he was a bit shocked to find he was aligned with Reform UK on this, and said he thought they were over-estimating how much this would raise, but that it it was still a good idea.
And he did point out, in his column, that there would be losers: banks, their shareholders and their customers.
Labour ‘has abandoned plans to raise £800m to reimposing pensions lifetime allowance’, report says
Labour has abandoned plans to bring back the pensions lifetime allowance (LTA), the cap on the amount of money that people can put into a pension pot tax free, the Financial Times is reporting.
In their story, George Parker and Josephine Cumbo said Rachel Reeves, the shadow chancellor, decided that reimposing the LTA would be complex and would create uncertainty for savers. Wealthy savers will benefit from the move, that will cost £800m.
Parker and Cumbo report:
The move is also a sign of Labour seeking to “de-risk” its election campaign — the party currently leads the Conservatives by about 20 points — by avoiding tax-raising policies that could be attacked by the Tories.
Reeves’s allies said the party had not allocated the £800m that would have been raised from reintroducing the LTA for any of Labour’s spending plans. “There will [be] no black hole as a result,” said one.
In his budget last year, chancellor Jeremy Hunt abolished the pensions lifetime allowance, which put a cap on how much people could save, or benefit from investment growth, in their pensions before tax charges kicked in. The move, which came into effect in April 2023, was welcomed by better off savers, including senior NHS doctors and other public servants, who were most at risk of breaching the old £1.073m cap …
At the time, Reeves vowed to reverse the change, saying it was “the wrong priority, at the wrong time, for the wrong people”.
The FT splashed on this story this morning.
SNP says Douglas Ross has been forced out by his colleagues as Scottish Tory leader over ‘shameful behaviour’
The SNP says that Douglas Ross has, in reality, been forced out as leader by the Scottish Tories and that he should resign as an MSP immediately. Commenting on Ross’s announcement about standing down as leader after the election, the SNP’s Seamus Logan said:
Douglas Ross must resign as an MSP today. It’s clear he’s been forced out as Scottish Tory leader after his shameful behaviour over David Duguid and his growing expenses scandal. Voters deserve a dedicated MSP – not one who is hedging his bets in case he loses the election.
Logan is the SNP candidate in Aberdeenshire North and Moray East, where Ross is the Tory candidate, and favourite to win. Duguid, a former Scotland Office minister, was the Tory candidate in the seat until he was elbowed aside by the party leadership last week, supposedly on the grounds that his health was not good enough because he was still recovering from a serious illness.
Reform UK says it would fund £40bn income tax cut by ending interest payments on QE reserves
Reform UK has proposed raising the personal tax allowance for income tax from £12,570 to £20,000. At a news conference this morning, it said that seven million people would be taken out of tax by this measure, which it described as its “Great British tax cut”, and it said it would cover the £40bn cost by ending interest payments on quantitative easing.
In a briefing explaining the proposal, Reform UK said:
The cost of this measure is estimated at £40bn pa (depending on employment numbers) which will be mainly funded by ending the Bank of England’s current voluntary payment of base rate interest on the printed money reserves, known as quantitative easing (QE) reserves. This transfers some £30-40bn per year of interest payments (at current interest rates) to big banks from taxpayers and is neither necessary nor contractual. Other central banks are not paying this, nor should the Bank of England.
To understand this concept, imagine printing a £20 note on your home printer and giving it to your neighbour who is having a tough time. Having done him a major favour, why would you pay him interest every year on the money you gave him? This is what QE did: saved the nation from going bust in 2008 and 2020 – so the Bank of England should not pay ongoing interest on the money reserves that it printed.
Defending the plan, Richard Tice, the Reform UK chair, said:
I have been raising this for over 12 months. Journalists such as the FT Economics commentator Chris Giles and Robert Peston agree with me on the principle of this QE interest issue, as do two former deputy governors of the Bank of England, Sir Paul Tucker and Charlie Bean. Furthermore the leftwing think tank New Economics Foundation, Paul Johnson of the Institute for Fiscal Studies and independent economists like Julian Jessop and Patrick Minford also agree. The fact that neither the chancellor, nor the Treasury, nor the Bank of England have proved why I am wrong, but instead have been silent on this issue, is because they are embarrassed to admit that I am right.
Reform said it would also raise the inheritance tax threshold to £2m, with estates worth more than that taxed at 20% (not 40%, the current rate); raise the threshold at which small business start paying VAT from £90,000 to £150,000; and abolish the IR35 tax rules for the self-employed. It said these three measures would cost between £5bn and £10bn a year, which could be funded by public sector efficiency savings.
Dharshini David, the BBC’s chief economic proposal, says the QE proposal is one that have been floated before, but not advocated by any of the main parties.
The Reform pledge to save c£35bn /yr by cutting taxpayer-funded interest on commercial banks’ QE reserves has been discussed in several quarters , thou not pushed by other major parties yet – & wouldn’t please banks.
One previous explainer: https://t.co/3QxfYYchCw
— Dharshini David (@DharshiniDavid) June 9, 2024
Sunak pays tribute to Douglas Ross, and rejects claims his resignation as Scottish Tory leader sign of more ‘chaos’ in party
Rishi Sunak has paid tribute to Douglas Ross following the announcement that Ross is going to stand down as Scottish Tory leader after the election.
In a pooled broadcast interview, asked if this was evidence of “more chaos” in the Conservative party, Sunak rejected that. He went on:
You can read Douglas’s statement about his reasons, and I respect his decision. It’s been a pleasure to work with him over the time that I’ve been prime minister.
He’s been a steadfast champion for the union but also he and I’ve worked together on delivering two freeports for Scotland, attracting jobs and investment, standing up to the SNP’s misguided gender recognition reforms and also being unashamedly champions of Scotland’s North Sea energy industry – the only party to consistently have done that. So I think that’s a pretty good track record that Douglas can be proud of.
Summary of key points from Lib Dem manifesto
PA Media has filed this summary of the key points from the Lib Dem manifesto.
The economy
The Liberal Democrats’ manifesto vows to repair the UK’s “broken relationship with Europe”, signalling that the party would want to redraw the post-Brexit trade deal with the EU as part of a series of measures aimed at improving economic stability and providing growth.
It would also seek to create “long-term help with the cost of living”, cutting energy bills through an upgrade programme, tackling rising food prices through a national food strategy, and getting mortgage rates under control through “careful economic management”.
The environment
Sewage is the Lib Dems’ headline pledge from their natural environment manifesto chapter.
It reads: “We will end the sewage scandal by transforming water companies into public benefit companies, banning bonuses for water bosses until discharges and leaks end, and replacing Ofwat with a tough new regulator with powers to prevent sewage dumps.”
According to party proposals, legally binding targets to prevent sewage dumping into bathing waters and highly sensitive natures sites would come into force by 2030.
Health
On health, the Lib Dem manifesto promises everyone in England “the right to see a GP within seven days, or within 24 hours if they urgently need to, with 8,000 more GPs to deliver on it”.
The announcement was trailed by the party in advance of the manifesto launch as part of a £9.4bn package for the NHS and social care in England, paid for by hiking taxes for banks and closing finance loopholes used by the super-rich.
The Liberal Democrats also want to guarantee access to NHS dentistry for those in need of urgent care, and they promise to implement the recommendations of the UK infected blood inquiry in full, including “full and fair compensation to all victims of the scandal in a timely and transparent manner”.
Care
The Lib Dems want to give unpaid carers a right to paid carers’ leave from work and a statutory guarantee of regular respite breaks.
The manifesto includes a pledge to expand access to carers’ allowance, and to stop pursuing anyone who has been overpaid the benefit in the past.
To create a longer-term settlement on social care, the party wants to establish a “cross-party commission” to create agreement about a sustainable funding model.
Pensions and benefits
The Lib Dems have vowed to maintain the triple lock on the state pension, in a similar move to Labour and the Conservatives.
They have also pledged to ensure women born in the 1950s who have been impacted by pension age changes are “treated fairly and properly compensated”.
Education
The manifesto pledges to increase school and college funding per pupil “above the rate of inflation every year” in its education offer.
The party also wants to invest in new school and college buildings to end the “scandal” of the crumbling schools estate.
Starmer defends free hours system of subsidising childcare
Kiran Stacey
Just over a year ago, Bridget Phillipson, the shadow education secretary, gave a speech in which she promised to completely abolish the free hours system of subsidising childcare places, saying it was ineffective and inefficient. Soon afterwards Jeremy Hunt announced a massive expansion of that scheme, and suddenly Labour has discovered it quite likes it after all.
Providers argue it does not adequately fund the number of places it is supposed to. But speaking to reporters on the campaign trail today, the Labour leader Keir Starmer appeared to disagree.
“[The free hours scheme] is a good plan, but it is not deliverable,” he said. He would not commit to any extra funding to make it more deliverable, focusing instead on Labour’s promise to add an extra 100,000 places through primary schools.
Another thing Starmer doesn’t want to talk about is exactly how and when Labour might impose its tax rise on private schools. Some parents are concerned it might hit them before the next school year, while others want to know what will happen if they have already paid several years’ worth of fees up front.
“We will set all this out if we are elected into government in our first budget,” he said. “What I’m not going to do four weeks before the election, is to preempt that budget.”
Starmer refuses to rule out raising capital gains tax
Kiran Stacey
Keir Starmer has been out on the campaign trail this morning, taking part in an arts and crafts session with primary school children to promote his party’s new policy of funding 100,000 extra childcare places.
That policy is one of a number of manifesto commitments that are being funded by specific tax rises. However the problem for Starmer if he gets into Number 1, as Paul Johnson of the Institute for Fiscal Studies has repeatedly argued, is that existing levels of government spending already need substantial extra funding, whether through taxes or borrowing.
Asked about this by journalists following him on the campaign trail, the Labour leader said the gap could be filled with extra growth. He said:
I know what the experts and commentators are saying, and what underpins what they’re saying is that you can’t carry on like this without a plan for growth.
It is always tempting for a government to go to tax and spend, but I’m not going to pull those levers. We don’t intend to pull those levers. We want to go to the lever marked growth.
Tellingly however, he did not deny his party is considering a capital gains tax rise if it wins the election – for the second time in two days. The Liberal Democrats say they would raise more than £5bn from raising capital gains tax. (See 12.13pm.)
Starmer also insisted Labour would not “go back to austerity”, despite projections showing that current spending levels would mean heavy cuts to unprotected departments during the next parliament.
How Lib Dems would raise extra £26.9bn in tax, and where they would spend it
Here are the two pages from the Lib Dems’ costings document showing where the Lib Dems would spend £26.8bn a year more by 2028-29, and how they would raise £26.9bn a year in tax to pay for this.
Lib Dem plans to raise spending by £26.8bn
Lib Dem plans to raise taxes by £26.9bn
