It was no coincidence President Richard Nixon had the sobriquet “Tricky Dicky”. His White House administration perfected the use of the “non-denial denial” – an answer to a question that on the face of it seemed to rule out a particular action, but on closer inspection left the door open for the proposition to be possible or true.
Seeking to play on our craving for certainty while leaving room to manoeuvre, this duplicitous approach is employed regularly by today’s politicians.
Labour, for instance, denied it had plans to charge tuition fees and then top-up fees in the general elections of 1997 and 2001 – both of which it subsequently introduced.
And is Rachel Reeves now using the non-denial denial to mislead us about Labour’s intentions on tax increases?
When pressed on possible tax rises if Labour is elected to power in July, Reeves is visibly self-satisfied with her carefully curated answer “there are no additional tax rises needed beyond the ones that are set out”. The reason is obvious, such a bald statement is a non-denial denial. It leaves open various ways of raising taxes once in power.
There are many ways in which Reeves could increase tax revenues without breaching her non-denial denial. Politicians prefer to focus on the rate of a tax, such as 20pc, 40pc or 60pc and will make promises about not raising those, but leave out what is liable for tax – which can be just as important.
Reeves and Starmer have announced they will make independent education liable for 20pc tax. Their same logic of making private provision of a service liable to VAT could be applied to private health and dental care.
Some taxes have exemptions for reasons of efficiency (to avoid liabilities being more costly to collect than what they raise) or they discourage desirable economic activity or change behaviour. Examples include allowing small businesses with a turnover below £90,000 not to register for VAT or farmland not being included in inheritance tax.
Many Labour-supporting tax advisers advocate abolishing such “loopholes”. They are not loopholes for tax evasion but legitimate legal exemptions granted to make the tax system work fairly and efficiently.
From 2010 to 2020 successive Conservative chancellors increased the income tax thresholds by at least inflation – sometimes by a significant amount, relieving many people of tax. That all ended in 2021 when Rishi Sunak froze the thresholds and used the impact of inflation to bring more people back into tax or into higher bands.
Both the Conservatives and Labour have said they will continue to freeze the thresholds for income tax until 2028 – effectively increasing the amount of earnings liable to tax by the rate of inflation, but also pushing more people every year into the higher tax bands. Will Reeves continue the freeze beyond 2028, when the Tories have promised to end it?
For some taxes, such as duties on fuel and alcohol, there are regulations that mean the amount of duty levied per litre is automatically up-rated annually to take account of inflation. Conservative chancellors have frozen the uprating of fuel duty for 13 years in a row, since 2011.
Reeves has not said what her future policy is on fuel duty but Labour is committed to using Net Zero carbon emissions as a reason to justify tax increases – will this result in fuel duty going up?
It is because of these sly and stealthy approaches to tax policy that I’ve pulled together 10 questions on tax that Labour should be confronted with, so we might receive specific answers rather than non-denial denials.
1. Will you apply National Insurance (NI) to savings, investment and rental income?
National insurance is not levied currently on income from savings, investment or rental properties – that could change and have a huge impact on economic activity in those sectors.
2. Will you extend NI to people over the pensionable age?
National insurance is not levied on income of pensioners either. The Treasury is known to be keen to try and change this and succeeded in respect of the so-called health and social care levy, but Liz Truss reversed it.
3. Will you extend employer NI to employers’ contributions to pensions?
NI is also not levied currently on employers’ contributions to pensions, that could be changed and place a further burden on businesses and the cost of employment.
4. Will you increase the NI rates paid by the self-employed?
The self-employed pay a lower rate of NI contributions than employees, at 6pc compared to 8pc for an employee on earnings between the same thresholds. This could be equalized.
5. Will you cut the cap on tax-free pension withdrawals?
Labour was opposed to the liberalisation of pension withdrawals in the past, it could easily reduce the cap so pension withdrawals become liable to tax at a lower level.
6. Will you make pensions subject to inheritance tax?
Pension pots are not subject to inheritance tax when we die, and if we die before the age of 75, the person(s) who inherits a pension pot can draw on the money as they wish, without paying any income tax either. Pensions could instead become subject to the death tax
7. Will you reduce the VAT registration threshold?
There are many Labour tax advisors arguing to reduce the threshold at which small business must register for VAT – creating a huge cost and burden on single proprietor businesses.
8. Will you remove the inheritance tax protections for owners of farms and small businesses?
Certain exemptions for inheritance tax exist for a reason, such as protecting the economy from negative consequences of taxation. If farmland is subject to inheritance tax it will lead to farms being split up and becoming less efficient and productive.
9. Will you reduce the amounts exempt from inheritance tax?
Certain gifts and assets are exempt from inheritance tax – these could be ended or changed, discouraging wealth creation and undermining family businesses.
10. Will you hold the tax burden at no more than its current level and commit not to introduce new taxes?
This is the real test that sums up all of the questions above.
It is not enough for Reeves to say she will not put up particular taxes. What she needs to answer is whether she will put up the overall tax burden we face – by widening the scope of taxes, abolishing or limiting exemptions, not ending the freezing of allowances for inflation or ending the freeze on petrol excise duty and other taxes.
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