The uncomfortable truth about Sunak and Starmer’s post-election tax plans

SALFORD, ENGLAND - JUNE 4: (EDITOR'S NOTE: This Handout image was provided by a third-party organization and may not adhere to Getty Images' editorial policy.) In this handout provided by ITV, Julie Etchingham hosts Conservative Prime Minister Rishi Sunak (R) and Labour leader Sir Keir Starmer (C) during first head-to-head debate of the General Election on June 4, 2024 in Salford, England. The first televised debate of the 2024 General Election between Rishi Sunak and Sir Keir Starmer will take place on ITV. (Photo by Jonathan Hordle - ITV via Getty Images)
The first televised debate of the 2024 general election between Rishi Sunak and Sir Keir Starmer (TV via Getty Images)

The election has burst into life this week. Nigel Farage's decision to stand for election in Clacton, Essex, was swiftly followed by the first significant moment of controversy that saw Keir Starmer and Rishi Sunak wrangle over disputed claims about Labour tax increases.

The prime minister claimed repeatedly in Tuesday night's TV debate that Treasury figures showed a Labour victory in the election would mean "£2,000 in higher taxes for every working family in our country".

Starmer branded the £2,000 claim "absolute garbage" and the Treasury’s permanent secretary James Bowler said ministers had been told not to suggest the figures were from civil servants. Labour has since pointedly accused Sunak of lying in the debate and many experts have also questioned the validity of the claim.

However, as the two men vying to be the next prime minister engage in their slanging match, some experts are warning that, in fact, both Conservative and Labour parties are being reticent about the true state of public finances and are engaged in a "conspiracy of silence" that is "detached from reality".

So what are both parties offering – and what is the uncomfortable truth they have been accused of avoiding.

The Conservatives, like Labour, have ruled out raising national insurance and VAT. Income tax, they say, would not be raised, but instead they would keep thresholds - including the personal allowance – frozen until 2027/28.

Sunak has also promised to increases the personal tax allowance for pensioners, rising in line with the state pension.

PORTSMOUTH, ENGLAND - JUNE 5: Prime Minister Rishi Sunak and wife Akshata Murty meet singer Marisha Wallace during a lunch for veterans and VIPs following the UK's national commemorative event for the 80th anniversary of D-Day, hosted by the Ministry of Defence on Southsea Common on June 5, 2024 in Portsmouth, England. King Charles III and Queen Camilla lead the commemorative events in Portsmouth ahead of the actual 80th Anniversary of D-Day on June 6th. Veterans, VIP Guests and school children are attending an event on Southsea Common. Portsmouth was where tens of thousands of troops set off to Normandy to participate in Operation Overlord. They established a foothold on the French coast and advanced to liberate northwest Europe. (Photo by Andrew Matthews - Pool/Getty Images)
Rishi Sunak on the campaign trail (Photo by Andrew Matthews - Pool/Getty Images)

This 'triple lock plus' would mean that pensioners are never subject to income tax on their state pensions.

Spending promises include the proposed return of national service, funded in part by £1.5bn from the winding up of the UK Shared Prosperity Fund, and an additional 100,000 apprenticeships a year funded by previously announced proposals to scrap what they have described as 'rip-off degrees'.

Jeremy Hunt has said that efficiencies of 2% per year from the government's Public Sector Productivity Programme will fill funding gaps – with the civil service cutting jobs and increasing its use of artificial intelligence.

Like the Conservatives, Labour has pledged not to raise income tax, VAT or national insurance.

Labour has also pledged to introduce a new windfall tax on energy company profits, and close loopholes which allow rich 'non dom' taxpayers to avoid tax.

One of Starmer's more notable pledges has been to end the loophole that means private schools avoid paying VAT on fees.

EDINBURGH, SCOTLAND - JUNE 04: Shadow Chancellor Rachel Reeves and Scottish Labour leader Anas Sarwar (not pictured) hold a Q&A with staff at RBS on June 04, 2024 in Edinburgh, Scotland. The Shadow Chancellor and Scottish Labour leader centred discussion on Labour's plans to support the financial services industry and boost economic growth in Scotland. (Photo by Jeff J Mitchell/Getty Images)
Shadow Chancellor Rachel Reeves on the campaign trail in Edinburgh. (Getty Images)

Labour's shadow chancellor Rachel Reeves has said she would like to increase income tax thresholds, but will not make commitments until she knows where the money is coming from – and the thresholds will remain in place until 2028.

Labour will not match the 'triple lock plus' but will maintain the triple lock.

Labour has also promised two million more NHS appointments a year, plus the launch of a publicly owned British energy company, Great British Energy that it says will cut bills and create jobs.

Regardless of the promises made by both parties, most British voters expect tax to rise regardless of who wins.

Voters expect tax rises, regardless of who wins the election. (Ipsos)
Voters expect tax rises, regardless of who wins the election. (Ipsos)

An Ipsos poll for the Financial Times found that while 56% of voters expected Labour to raise taxes, 52% also expected the Conservatives to raise taxes.

They have good reason to think so, the UK's current tax burden is at historic highs and is not expected to go down anytime soon.

Last week, experts at the Institute for Fiscal (IFS) studies warned of a ‘conspiracy of silence’ by both parties to avoid tough questions around tax and spending.

The IFS warned that regardless of who wins the election, they will inherit the toughest outlook for public finances in 80 years.

IFS director Paul Johnson said: “The government and opposition are joining in a conspiracy of silence in not acknowledging the scale of the choices and trade-offs that will face us after the election.

“They, and we, could be in for a rude awakening when those choices become unavoidable.”

He also warned that government debt as a proportion of the economy is at its highest level for 70 years and is “showing no signs of falling”.

Following the debate, Johnson was even more damning of the two leaders, saying on X, formerly Twitter: "Depressing debate last night. No openness about tax and spend. Big direct tax rises are nailed in over next 3 years whoever wins, as allowances and thresholds are frozen. Avoiding big spending cuts while keeping to promises on debt will require more tax rises."

The IFS said on X that both parties appear committed to "one substantial tax rise" – namely, freezing personal tax allowances and thresholds for the next three years.

And that while such a measure would raise £11bn per year, both parties would need to raise taxes to "avoid serious spending cuts".

The Resolution Foundation think-tank also warned that the debates between the parties around tax and spending were "detached from reality".

They said that while both parties were committed to reducing debt, factors such as high interest payments on debts and slow productivity growth would make this hard.

The think-tank said that the government could face a deficit of up to £30bn, forcing the government to consider either tax rises or service cuts.

Resolution Foundation’s research director James Smith said: “The state of the public finances has dominated the election campaign so far, with the inevitable arguments over how each spending pledge is funded. But this narrow focus risks distracting the electorate from the bigger question of how each party would manage the uncertainties facing the public finances.

“This question is crucial, as whoever wins the election could be confronting a fiscal hole of £12bn, if today’s uncertainties turn into bad news after the election. And if the next government wants to avoid a fresh round of austerity, that black hole could rise to over £33bn.”