Sir Keir Starmer has hinted at possible tax rises for those who own shares and assets, saying they do not fit his definition of “working people”.
The prime minister was asked to share his definition of a “working” person after Labour’s election-winning manifesto promised it would not “increase taxes on working people” – but who exactly that covers has not been entirely clear.
The debate over the definition intensified after ministers refused to rule out raising national insurance on employers in the budget – which tax experts believe would ultimately be passed on to employees and workers – for example, through lower wages.
Sir Keir said he believed a working person was somebody who “goes out and earns their living, usually paid in a sort of monthly cheque” but they did not have the ability to “write a cheque to get out of difficulties”.
Asked by Sky News’ political editor Beth Rigby whether he would classify a working person as someone whose income derived from assets, such as shares or property, the prime minister said: “Well, they wouldn’t come within my definition.”
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Pressed on whether that meant taxes for those people could go up, the prime minister said: “You can probably give me any number of examples… you’re asking me for a definition of who’s a working person, and then you’re making assumptions about what that tax might be in relation to.”
Inheritance tax, charged on the estate of someone who has died, and capital gains tax, imposed on the profit from the sale of capital assets, have been touted as the two most likely to see a rise.
Capital gains tax is currently levied on most personal possessions worth £3,000 or more, including second homes, most shares not held in an ISA and business assets.
Number 10 later said people who hold a small amount of savings in stocks and shares still count as working people – and that the prime minister was referring to someone who primarily gets their income from assets in the interview.
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Rachel Reeves, the chancellor, has refused to rule out increasing them, saying in August: “On spending, on welfare, and tax, we’re going to have to make a series of difficult decisions, but I’ll set out that detail in the right and proper way on the 30 October at that budget.”
Both Sir Keir and Ms Reeves have repeatedly warned that “tough” decisions lie ahead in the budget after it claimed to have uncovered a £22bn black hole in the nation’s finances left by the previous government.
According to people close to the budget, the gap in funding identified by the chancellor is more than twice what was previously thought – at £40bn.
The chancellor admitted on Thursday she would rewrite the government’s fiscal rules in next week’s budget to allow her to increase borrowing for public investment by around £50bn.
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Speaking to Sky News in Washington DC, the chancellor said the self-imposed rule under which borrowing must be falling by the fifth year of economic forecasts will be redefined from the current measure of public sector net debt.
She insisted the change was necessary to end years of declining public investment and deliver on Labour‘s promise to deliver growth.
“Under the plans that I have inherited from the previous Conservative government, public sector net investment as a share of our economy was due to decline steeply during the course of this parliament,” she said.
“I don’t want that path for Britain when there are so many opportunities in industries from life sciences to carbon capture, storage and clean energy to AI and technology, as well as the need to repair our crumbling schools and hospitals.”