It was no coincidence that President Richard Nixon was nicknamed “Tricky Dicky.” His administration in the White House perfected the use of the “non-denial denial” – an answer to a question that at first glance seemed to rule out some action, but on closer inspection left the door open to the possibility or proposal . WHERE.
In an attempt to appeal to our desire for certainty while leaving room for maneuver, this duplicitous approach is regularly employed by today’s politicians.
For example, Labor denied that it had plans to charge tuition fees and then additional fees at the 1997 and 2001 general elections – both of which it subsequently introduced.
And is Rachel Reeves now using non-denial denial to mislead us about Labour’s intentions on tax increases?
When pressed about possible tax increases if Labor is elected to power in July, Reeves is visibly smug with her carefully crafted response: “there is no need for additional tax increases beyond those set out”. The reason is obvious: such a bald statement is a denial that is not denied. It leaves open several ways to increase taxes once in power.
There are many ways Reeves could increase tax revenue without violating her nondenial denial. Politicians prefer to focus on the rate of a tax, such as 20%, 40% or 60%, and will make promises about not increasing it, but leave out what is taxable – which can be just as important.
Reeves and Starmer have announced they will make independent education liable for a 20% tax. The same logic of subjecting private services to VAT could be applied to private healthcare and dental care.
Some taxes have exemptions for efficiency reasons (to prevent debt collection from becoming more expensive than what they yield) or they discourage desirable economic activities or behavioral change. Examples of this include allowing small businesses with a turnover of less than £90,000 not to register for VAT or allowing agricultural land not to be included in inheritance tax.
Many Labour-supporting tax advisers are calling for the abolition of such ‘loopholes’. They are not tax evasion loopholes, but legitimate legal exemptions granted to make the tax system work fairly and efficiently.
From 2010 to 2020, successive Conservative chancellors raised income tax thresholds by at least the rate of inflation – sometimes by a significant amount, exempting many people from tax. That all ended in 2021 when Rishi Sunak froze the thresholds and used the impact of inflation to get more people back on tax or into higher bands.
Both the Conservatives and Labor have said they will continue to freeze income tax thresholds until 2028, which will effectively increase the amount of income taxable with inflation but also push more people into higher tax brackets each year. Will Reeves continue the freeze beyond 2028, when the Tories have promised to end it?
For some taxes, such as fuel and alcohol duties, there are rules that mean the amount of excise duty per liter increases automatically each year to take inflation into account. Conservative chancellors have frozen fuel duty increases for thirteen years in a row since 2011.
Reeves has not said what her future policy on fuel duty will be, but Labor is determined to use Net Zero CO2 emissions as a reason to justify tax increases – will this lead to fuel duty going up?
It is because of these devious and surreptitious approaches to tax policy that I have collected ten questions about tax that Labor should face, so that perhaps we get specific answers rather than non-denial denials.
1. Do you take out National Insurance (NI) for savings, investments and rental income?
National insurance is not currently charged on income from savings, investments or rental properties – that could change and have a huge impact on economic activity in those sectors.
2. Will you extend NI to people who have reached retirement age?
National insurance is also not levied on the income of pensioners. It is understood that the Treasury is keen to try to change this and has succeeded in relation to the so-called health and social care levy, but Liz Truss has reversed this.
3. Will you extend employer NI to employer contributions to pensions?
NI is also not currently charged on employers’ contributions to pensions, which could be changed and could place a further burden on business and the cost of employment.
4. Will you increase the NI rates for self-employed people?
Self-employed people pay a lower percentage of NI contributions than employees, at 6%, compared to 8% for an employee with an income between the same thresholds. This could be leveled out.
5. Will you reduce the limit for tax-free pension withdrawals?
In the past, Labor has been against the liberalization of pension withdrawals. They could easily lower the ceiling, so that pension withdrawals became taxable at a lower level.
6. Are you going to tax pensions with inheritance tax?
Pension pots are not subject to inheritance tax when we die, and if we die before the age of 75, those who inherit a pension pot can enjoy the money as they wish, without paying any income tax. Pensions could instead be subject to death tax
7. Will you lower the VAT registration threshold?
There are many employment tax advisors who advocate lowering the threshold at which small businesses must register for VAT, which imposes huge costs and burdens on single-owner businesses.
8. Will you eliminate estate tax protection for farm and small business owners?
Certain inheritance tax exemptions exist for a reason, for example to protect the economy from the negative consequences of taxation. If inheritance taxes are to be levied on agricultural land, this will lead to farms being split up and becoming less efficient and productive.
9. Will you reduce the inheritance tax exempt amounts?
Certain gifts and assets are exempt from inheritance tax; these can be ended or changed, discouraging wealth creation and undermining family businesses.
10. Do you intend to keep the tax burden at no more than current levels and commit not to introduce new taxes?
This is the real test that summarizes all the questions above.
It’s not enough that Reeves says she won’t raise certain taxes. What it must answer is whether it will increase the overall tax burden we face – by increasing the scope of taxes, eliminating or limiting exemptions, and not by ending the freeze on the inflation exemptions or by putting an end to the freeze on petrol duties and other taxes.