Expect stealth tax rises from loophole Labour Party

The thought of being dragged – into a vehicle, through a hedge backwards, away from a buffet – is also negative, but put “fiscal” in front and people won’t feel like they are facing a direct threat. Being dragged into a higher tax bracket sounds like a problem for privileged people to complain about, no?

Write a news headline containing the phrase “fiscal drag” and your story is unlikely to go viral, and Labour surely know it.

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They have been working overtime trying to redefine concepts like “national debt” and “working people”, desperately searching for loopholes that mean they can balance the Budget in accordance with their fiscal rules while fulfilling the pledges in their manifesto’s tax section – the section that, ironically, promises they will close loopholes.

They promised not to increase the “basic, higher, or additional rates of income tax”, which at a glance might have reassured the average English, Welsh or Northern Irish voter that the rate of tax they pay will not increase under this Labour Government.

And indeed that will be true, if said average voter does not receive any pay rises in the near future – not even small bumps in line with (or indeed beneath) the rate of inflation.

But if their pay does rise, they may be drawn into paying income tax for the first time because the tax-free personal allowance has remained frozen at £12,570. Or they might find that a portion of their salary will now be taxed at a higher rate – ie, that they have been “dragged” into a higher band.

Scotland has six income tax bands compared with the UK’s three – but Holyrood has to balance its budget. With an election looming north of the Border, close attention will be paid to how any sleight-of-hand by Reeves is received.

“Stealth taxation” is a much more eye-catching headline phrase than “fiscal drag” – and Reeves won’t be in a position to protest if she’s accused of doing this. After the 2022 Autumn Statement in which tax thresholds were frozen, she said Jeremy Hunt had “picked the pockets” of the entire country with a “raft of stealth taxes”.

However, when grilled on the BBC about the decision to freeze thresholds she refused to be drawn on that specific move, saying simply that Labour would have “made different choices”.

Reeves (below) would have known then what she knows now: that top-line promises about not raising income tax are vote-winners, and the rather more technical arguments that the freezing of thresholds is a de facto tax grab take a bit of explaining and will lead to some eyes glazing over.

She also knows she can confidently keep referring to “high earners” even as the term is redefined to include many more people, and avoid addressing some unwanted effects of taxing them more and simultaneously withdrawing benefits from them.

When the Tories announced, during the summer election campaign, that they would allow some parents on six-figure salaries to keep all of their Child Benefit – rather than have it deducted via the High Income Child Benefit Charge – the news was hardly likely to inspire the average voter.

They also proposed to make the means-testing of Child Benefit much fairer by taking into account the income of a household, not just that of the highest-earning parent (a system that particularly penalises high-earning single parents).

Of course, if this was a straightforward thing to do, George Osborne would have done it in 2013 when he introduced the “charge” – which is actually a tax by another name; not a “stealth tax”, but a real one wearing a disguise.

Part of the issue here is that, as a January article in Grazia about childcare funding described, many of those affected by such thresholds are aware their complaints sound like “first-world problems”, even when government policies have negative consequences that were easy to foresee but presumably not expected to be politically damaging.

Women told the magazine of their frustration at being denied free childcare hours for their two-year-old children because their partners’ earnings of more than £100,000 made them ineligible – despite the fact that couples with a combined income of £199,999 would receive the funding.

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As a consequence, many women who wanted to return to work did not, and some men reduced their hours to stay under the limit. Fine, you might think, who cares?

First-world problems indeed. But that assumes it’s not a problem for society when high-earning parents – such as doctors or senior civil servants – make the rational financial decision to work less.

The threshold for removal of Child Benefit was increased from £50,000 to £60,000 by the Tories to prevent up to 30% of families being dragged into paying the charge-that’s-really-a-tax, but the fundamental unfairness of it remains, and there’s no suggestion yet that Labour are poised to a) restore universal entitlement or b) try to fix the flawed existing system of means-testing.

When they won’t even remove the two-child cap, how could they?