Rachel Reeves has said she would support a 2p cut to the basic rate of UK Income Tax amid reports that Rishi Sunak is considering the measure.
The shadow chancellor told City A.M. in a wide-ranging interview that she “would like to see the chancellor do it”, but described reports of Sunak’s potential tax cuts as “just talk, talk, talk”.
Sunak announced plans this year to increase Corporation Tax and National Insurance in response to the record level of public spending during Covid-19.
The moves will increase the UK’s tax burden to its highest level in seven decades.
The chancellor has said he aims to cut taxes by the end of this parliament, with The Times reporting he is looking at cutting 2p from Income Tax and scrapping the top 45p bracket.
Reeves said she was sceptical about Sunak’s tax-cutting credentials and underlined Labour’s opposition to the 1.25 per cent rise in National Insurance Contributions set to come in next year.
“I think this speculation about Rishi Sunak cutting taxes, I think it is a sort of triumph of hope over reality,” she said.
“It’s all well and good to say the chancellor believes in low taxes, but that doesn’t pay the bills, it doesn’t release money for investment. What does that is if you actually cut the taxes.
“It’s easy to say I’m the party of motherhood and apple pie, but you have to judge politicians by what they deliver.”
A Treasury spokesperson said: “We have been clear that we want to see taxes going down by the end of this Parliament and we keep the tax system under review.”
Reeves also underlined her policy to cut business rates and then replace them with a new system that creates a “more level playing field” between High Street shops and online businesses.
Business rates are based on a company’s property values, meaning that online firms with small physical footprints often pay less than bricks and mortar shops.
Labour’s plan would see taxes increase on online companies in order to fill the gap of any business rates cut.
“Most businesses don’t want a handout, they want a fair chance. A fair crack of the whip,” she said.
“We also don’t want to penalise businesses that invest in making their properties more energy efficient and move them towards net-zero. If you put in electric vehicle charging points or solar panels then you are penalised by paying higher rates of business rates from the get go.”
Reeves’ comments, and Labour’s policy to slash business rates, won plaudits from the free market Adam Smith Institute (ASI) think tank.
The institute’s Morgan Schondelmeier said: “At least now Labour is providing some alternative to harmful economic policies.
“Rachel Reeves’s comments put Prime Minister Boris Johnson and chancellor Rishi Sunak on notice – there will be a political cost for breaking key manifesto commitments to not increase tax.”
Reeves said she was still in favour of the UK trying to get equivalence for the financial services sector post-Brexit.
The UK’s financial services sector has not been granted equivalence by the EU post-Brexit, which means the City has lost its wide-ranging access to European markets.
Brussels only grants equivalence to outside countries if they keep their financial services regulations within the orbit of the EU’s.
Sunak has already outlined a number of changes he wants to make to the UK’s financial services rulebook post-Brexit, including changing share listings rules to attract more tech unicorns to go public in the UK, allowing blank-cheque Spacs to list in London and reducing capital requirements for insurance firms.
Reeves said the priority should still be striking an equivalence deal with Brussels, despite recent figures from TheCityUK showing that the US has overtaken the EU as the UK’s largest financial services export destination.
“The size of the systemic risks posed by having such a large financial services sector means you’ve got to be able to control regulation, you can’t outsource that regulation,” she said.
“That doesn’t prohibit getting equivalence. That was the government’s objective in the first place, but during the course of the government’s Brexit negotiations financial services were sold down the river. That was a mistake.
“For jobs, for tax revenues, our financial services sector in London, Leeds and around the country are incredibly important. The biggest net export sector in our economy.”