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The fight back against the Labour government’s threatened tax onslaught has already begun, and it’s picking up steam. This has caught Reeves by surprise, because she’s likely to generate far less tax than she hoped as a result.
In fact, HMRC revenues could fall as taxpayers change their plans.
Reeves and PM Keir Starmer have got their strategy wrong. Their first big mistake was to talk down the UK economy, destroying confidence and investment.
Business growth has now slowed for two consecutive months, S&P Global says, as wary bosses take a “wait-and-see approach” before the autumn Budget.
That’s the last thing we need as the UK tries to escape stall speed.
Labour’s second big mistake was to delay the Budget for almost four months after the election on July 5, as it waited for the Office for Budget Responsibility to check its plans.
With Labour refusing to say what it will do, speculation has run riot.
This has panicked taxpayers and encouraged them to take evasive action.
Which brings me to Labour’s third big error.
Reeves thought taxpayers were sitting ducks and her tax hikes couldn’t be missed. She thought she could raise £2.6billion by slapping taxes on super-wealthy foreigners known as non-doms.
As I reported yesterday, non-doms aren’t sitting around. They’re taking flight.
The international rich are highly mobile, and can take their money wherever they wish. Reeves’ non-dom raid could cost the UK £1billion in lost tax.
The same is happening with her planned capital gains tax (CGT) raid, which could see rates hiked in line with income tax bands.
Landlords who sell a buy-to-let property will see their CGT bill jump from 24% to as much as 40% or 45%.
They’re not hanging around, either.
Many are rushing to sell their properties now, to pay the lower CGT rate. In the short term, that will give Reeves a bump in tax receipts.
But long-term CGT revenues will fall as landlords give up buying properties while existing ones sit tight and hope a future government will reverse the CGT raid.
Others are sticking properties into a company structure and will pay a lot less tax as a result.
CGT is also deterring entrepreneurs from setting up businesses in the UK, because the Treasury will snatch most of their gains. They’re heading for sunnier shores. Yet more blowback for Reeves.
Imposing VAT on private school fees may also backfire as one in four pupils heads for the state sector, where taxpayers will have to fund their education.
Businesses are scared stiff of deputy leader Angela Rayner’s plan to boost worker’s rights, including giving new hires full employment rights from day one.
Bosses daren’t risk taking on a slacker they can’t get rid of. Hiring is falling. Unemployment could rise as a result.
All this was foreseeable, except for Labour. The party has been out of power for 14 years and it shows.
There are signs Reeves is backtracking on some of these taxes, but it’s too late. The damage has been done.
Now here’s the biggest worry. If Reeves doesn’t raise enough tax in the autumn and her Budget black hole widens, she’ll be back for more. She’ll no doubt blame the Tories for that. In truth, it’ll be her fault.