Labour and Conservatives rule out VAT increase after UK election

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Labour and the Conservatives have both ruled out raising VAT in the next parliament, as scrutiny of the two main parties’ tax plans intensified in the general election campaign.

But Tory Chancellor Jeremy Hunt said — and Labour leader Sir Keir Starmer suggested — their parties would freeze income tax thresholds after the election, a move that would see more people dragged by inflation into paying tax or into higher tax brackets over time.

With Labour still far ahead in the polls as the election campaign moves into its second week, both parties have accused their rival of plotting to raise taxes by stealth.

The UK’s squeezed public finances leave little headroom for whichever party wins power after the July 4 poll, with both sides keen to allay public concerns they would be forced to raise taxes if elected.

Hunt said that increasing VAT would “hammer families’ finances and push inflation back up”, as he vowed his party would not raise the tax on products and services.

Writing in The Telegraph on Wednesday, Hunt hinted at the possibility that Labour was planning to hike VAT if it wins power, highlighting that opposition leader Sir Keir Starmer and his shadow chancellor had repeatedly refused to comment on the matter in recent days.

He contrasted the omission to Labour’s explicit pledge to rule out income tax and national insurance rises.

Rachel Reeves, shadow chancellor, called Hunt’s words “absolute nonsense” and added VAT to her party’s tax pledge, saying: “Labour will not be increasing income tax, national insurance or VAT.”

A Tory spokesperson accused Labour of having “only caved in” due to pressure from Conservative campaign headquarters.

Paul Johnson, director of the Institute for Studies think-tank, said in response to the pledges: “We’re getting so many promises not to do things, and so little focus on the scale of the challenge that whoever wins is going to have.”

Economists have predicted that un-ringfenced areas, including courts, prisons and local councils, could face spending cuts of up to 4 per cent in the next parliament without significant new funding. Labour has promised not to borrow to fund day-to-day spending.

Johnson highlighted that income tax, national insurance and VAT accounted for two-thirds of all tax revenue collected in the UK, meaning the two main parties have left themselves little room for manoeuvre.

The next government could still raise revenue by reducing tax relief on pensions, increasing the levy on banks, or amending the rules around capital gains tax, he said.

However, Johnson warned: “The more you say you’re not going to do X, Y and Z, the more you’re pushed into these slightly more niche, often less transparent, sometimes economically inefficient areas”.

Reeves will have to implement “hard spending cuts” or raise taxes to stick within her own fiscal rules, Johnson said.

On Thursday, Hunt also confirmed the Tories would press ahead with their existing plans to freeze income tax thresholds until 2028, before raising them.

Critics say frozen thresholds are a form of “stealth tax”, as they drag several million more people into paying income tax, or a higher band, over the course of a parliament as wages rise with inflation.

The chancellor told the BBC: “I can absolutely undertake that the threshold freeze that we introduced until 2028 will not continue after that.”

Speaking at a campaign event in Wales, Starmer said his party would not make any pledges on raising the thresholds. He said: “On the thresholds, I do think that the burden on working people is too high. 

“But I’m not going to do what the government is doing and make commitments that we cannot afford. And therefore I’m very clear about the tax that will remain and will be locked, and where we cannot make those commitments.”