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Labour may have to hike inheritance tax or raid pensions in 'unpopular' move, Rachel Reeves' adviser admits

3 July 2024, 16:42 | Updated: 3 July 2024, 21:02

Labour may have to raise inheritance tax, an adviser to Rachel Reeves has warned
Labour may have to raise inheritance tax, an adviser to Rachel Reeves has warned. Picture: Alamy/LBC
Natasha Clark

By Natasha Clark

Labour may have to hike inheritance tax hikes or raid pensions in future, a new tax adviser to Rachel Reeves has admitted.

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Sir Edward Troup, the former HMRC Permanent Secretary, is one of a new panel of experts Labour has appointed to advise on its efforts to “modernise” the tax office.

They hope it can help rake in £5billion more cash for the Treasury by clamping down on tax loopholes.

However, Sir Edward told LBC's Tom Swarbrick that because of the party's promises not to raise income tax, VAT or National Insurance, they'll have to look at other ways to raise cash.

And inheritance tax "will have to be on the agenda and will be unpopular".

Read more: Labour should use inheritance tax raid to 'ease intergenerational inequality', says frontbencher Darren Jones

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He said: "Both political parties have ruled out increasing the rates of the main taxes, so if the incoming government does want to raise money and the indication is that they will have to, one way or another, then they really do have to look at the smaller taxes.

"And inheritance tax, it's not a tiny tax, it's a reasonable size tax and so inheritance tax will have to be on the agenda.

"But it will be unpopular and the amount that can be raised, even by quite radical changes is not going to make the difference between problems with the public finances and solving the problems.

"If you wanted to look at ways of raising money which don't affect the economy, which obviously income tax and National Insurance do, then inheritance tax ticks a lot of boxes."

Caller does not trust Labour's rhetoric on the economy

Today Labour distanced themselves from the comments made by their new adviser.

A party spokesperson said: "These are not Labour Party policies".

Baby boomers born in the 1950s had it "better" and those who are well-off should have their income taxed too, Sir Edward added.

He said: "I'm in this category myself, I'm a baby boomer, I was born in the fifties, I bought my house when interest rates were high, but inflation was a lot higher.

"My income went up and paying off my mortgage became easier.

"My generation is having it better than the generation who are currently working.

Labour Party leader Sir Keir Starmer
Labour Party leader Sir Keir Starmer. Picture: Alamy

"I don't mean pensioners who are not well off, I mean pensioners who work and have got income - they should be taxed at least as hard as those people you know who are working of working age."

The state pension may also need to be means-tested at some point in the future thanks to the spiralling cost of the bill to the taxpayer, Sir Edward admitted.

"It's a benefit which you've earned, but in a sense, we've earned all our benefits by paying tax and being members of society.

"I don't think it's wrong, it's an income and actually, you do pay tax on it as it happens.

"We can all think of the wealthy individuals in this country and say, well, do we think he or she should have a full state pension?

"Or if the public finances are in a bit of a state, perhaps he or she should be giving that up? So, there is a debate to be had.

"It's not easy and I don't hold a particular view about how we deliver something which I think, should be delivered.

"My generation, the pensioners’ generation, if they've got income, if they've got means, should be contributing at least as much, and possibly more than those people who are working, bringing up families and are really contributing now to that country."

An incoming Labour government will have to look at revenue raisers somewhere, he said.

"I do think National Insurance contributions for those people who are continuing to work and continuing to earn after state pension age – we shouldn’t take their state pension away but we should ask why should you suddenly pay less tax?

"A lot of people do go on working and often full time and very remuneratively, after the state pension age. So I'd look at National Insurance."

He stressed he was not advising Labour on what taxes they could raid and his new role was focused on making existing taxes work better.

Sir Edward added: "The panel is looking at making HMRC work better, it's not been looking at policy, it's looking at how can we collect money at the taxes that are there, better.

"I have not been advising on policy... Any views are well away from what I've been discussing with Labour."

Labour has repeatedly dodged questions on whether they would hike inheritance tax or other levies if they get the keys to No10 Downing Street on Friday.

The Tories have claimed they are planning a tax raid if they win.

The new panel, announced in April, will also include making HMRC more digitised.

Dame Margaret Hodge MP, former chair of the Public Accounts Committee, Bill Dodwell, former tax director of the Office for Tax Simplification, and Mike Bracken CBE, founding partner at Public Digital, and founder and former executive director of the UK Government Digital Service, will also join the board of top wonks.

They will work on tax compliance, making tax digital, and boosting customer service.

James Murray, Labour’s Shadow Financial Secretary, said at the time: "I am grateful to the panel for agreeing to support us with this incredibly important piece of work.

"I am looking forward to working with them over the coming months as we prepare Labour’s plans for what we would do in government if we win the next general election."

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