The government has closed the door to a tax on workers with six-figure salaries amid confusion over what Labour’s definition of “working people” means.
In its manifesto, the party promised not to raise “taxes on working people” – specifiying national insurance, income tax and VAT.
But, ahead of next week’s Budget, a ministers refused to clarify whether those earning £100,000 or more will be protected by the pledge – or are instead set to face tax hikes as Rachel Reeves attempts to fill a £40bn black hole in Labour’s spending plans.
But after Downing Street failed to completely close down speculation of a tax on high earners, sources close to Ms Reeves issued a clarification that includes those on six-figure salaries as “working people”.
The threat of a raid on high earners would further fuel concerns that those with wealth will leave the UK.
Any extra tax on people earning £100,000 more will drag in high-end professionals, as well as many GPs and secondary school headteachers. One leading businessman in London has also warned that “it will not only be a departure of wealth but a brain drain with talent leaving the country as well”.
The loss of high earners could hit Labour’s plans for growth, with the top 1 per cent of earners paying 30 per cent of all taxes according to the London School of Economics.
Already Britain was second in the league table for millionaires quitting the country after India. One estimate suggests that as many as 500,000 millionaires could relocate by 2028.
The speculation about Ms Reeves’ plans came ahead of a launch of a consultation on NHS reform this morning when health minister Stephen Kinnock refused to say six times whether those on six-figure salaries would be protected from tax rises.
Asked by Sky News if people with salaries above £100,000 were classed as “working people”, he replied: “The chancellor is going to set all of this out on October 30. Look, our manifesto made it absolutely clear that we will not be raising national insurance, income tax or VAT on working people and that is the pledge that will be delivered.”
Asked to define “working people”, he said: “The chancellor will make that absolutely clear on October 30.”
Pressed on Mr Kinnock’s answers, a Downing Street spokesperson said: “The chancellor talked about people who go out and work and earn money through hard work, and ultimately the government remains committed to the manifesto pledge not to raise VAT, national insurance contributions or income tax as part of its commitment not to increase taxes on working people.”
He added that ministers are “referring to people who go out and work and earn their money through hard work”.
Later a source close to the chancellor confirmed that high earner do count as working people.
Over the weekend health secretary Wes Streeting said there would be no help for high earners in the Budget, which would be targeted at assisting low and middle income earners.
Already, the government has indicated that it is looking at a series of wealth taxes including raising capital gains rates on investments, and increasing inheritance tax and extending it to farmland.
Other plans set to be confirmed in the Budget are a tax raid on private schools with 20 per cent VAT applied to fees and abolition on non-dom status.
A Conservative Party spokesman said: “This Labour Government is incapable of being straight with the British public.
“Time and time again they promised not to raise taxes on working people, and now just 9 days from their first budget they still can’t even say what that means.
“They must urgently clarify who will bear the brunt of their tax plans or once again face accusations that they are gearing up to break their promises to the British people.”