Tax Plans of the Labour Party: Risk for the British Economy?

Rachel Reeves, the British finance minister, faces the challenge of implementing her ambitious tax plans, which could potentially spell trouble for the economy. Her strategy to generate additional funds through tax increases on the super-rich and private equity capital to finance healthcare is met with skepticism. Ahead of the elections, Labour announced that those with "broadest shoulders" should bear the greatest burden, but the reality shows that these shoulders are already heavily loaded. The British tax authority points to the increasing burden on high-earning Britons, who currently pay more tax on every additional pound earned than in any other G7 country. The marginal tax rate of 66% for high-earning workers is the highest, compared to 60% in France and 33% in the USA. Such high rates can significantly reduce the willingness to work more and pursue career advancements, warns the Office for Budget Responsibility (OBR). The UK's reliance on high incomes to fund public services is evident. The top 1% of income earners are responsible for more than a quarter of total income tax revenues. Meanwhile, the share contributed by the bottom 50% has nearly halved since the 1970s. Carl Emmerson from the Institute for Fiscal Studies points out that higher incomes have actually been tax-relieved in recent decades, but the increasing burden on top earners continues to advance. This development now affects not only the super-rich but also the middle class, who are increasingly being pushed into higher tax brackets. Tax measures, such as the freezing of tax allowances, are leading to more people falling into the top tax rate. Additionally, Reeves plans to target capital gains tax, which has already raised concerns about potential negative impacts on investments and economic growth. The question remains whether Reeves can fulfill her promises without massively resorting to tax increases for "working people." The pressure to find innovative solutions for tax policy is growing, as proposals from former political advisors are increasingly seen as doubtful.