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Downing Street aides told Bloomberg they were pleased that Gray had gone and were optimistic the new team would provide a clearer political direction and better-defined strategy to their operation, speaking on condition of anonymity discussing internal appointments.
Starmer and Chancellor Rachel Reeves must now turn their attention to a budget on October 30 that is already under strain.
Plans to impose value-added tax on private school fees, announced in Labour’s election manifesto and due to come into force in January, may have to be delayed to prevent administrative problems, aides said, confirming a report in the Observer newspaper on Sunday.
Reeves is also reconsidering a planned overhaul of the tax regime for non-domiciled foreigners, looking at different policy options to maximise the tax intake after suggestions it would spark a wealth exodus and end up losing money for the Treasury.
Further proposals to close a loophole on carried interest – private equity fund managers’ portion of profits on asset sales – are being looked at again after internal Treasury analysis showed they too could end up costing the Exchequer money.
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Warnings that the tax on carried interest could be raised to 45 per cent from the current level of 28 per cent spooked many top financiers across the city. The private equity firm General Atlantic has warned the government that dozens of dealmakers in London could leave if plans for higher taxes on carried interest went ahead. The hedge fund billionaire Alan Howard is considering a move to Geneva from London. Jeremy Coller, a pioneer of Britain’s private equity sector, has already left for Switzerland. While Reeves still intends to close the loophole, she is now reviewing her approach to maximise the revenue raised.
Together, the three tax commitments were meant to raise about £4.8 billion ($9.2 billion) out of £8.6 billion in total, with the proceeds going to fund among other things 6500 new teachers, 40,000 more operations, scans and appointments for the health service every week, and 8500 new mental health staff, according to a costings document published by Labour alongside its manifesto.
Doubts over those costings will bring questions for Reeves and Labour in the coming days over how much money the tweaked policies will generate, whether that will be enough to pay for those manifesto commitments, and how else they might be funded.
In her budget, Reeves is expected to raise other taxes such as capital gains tax, as well as announce spending cuts and alter her fiscal rules to allow growth-enhancing investment. She and Starmer have recently tried to soften their message after repeated warnings about the “painful” steps needed to fill a £22 billion hole in the public finances triggered a sharp fall in consumer and business confidence.
Bloomberg