Labour Party Conference 2025: Ministers prepare public for tough choices on tax

Under fire Starmer promises fight for the soul of the country

Labour leader Sir Keir Starmer is widely seen as having had a good conference, rallying Labour activists behind him with promises to improve living standards and take the fight to Reform UK.

That Starmer needed to rally his troops was indicative of the state his government finds itself in just 14 months on from its historic general election landslide. Much of the goodwill that delivered Labour its thumping, if shallow, victory last summer appears evaporated. The party headed into its conference hot on the heels of a slew of opinion polls putting them anywhere between 7 and 16 points behind Reform UK, bringing the Prime Minister’s own political future into question.

One such survey, by pollsters YouGov, suggested Labour could lose as many as 267 of the seats it won in July 2024 if an election were held today, a result that would put Nigel Farage on the cusp of Number 10 while delivering a near-extinction event for the Conservative Party. This is why Starmer’s party have turned their guns on Farage, with Starmer using his leader’s speech on the penultimate day of conference to frame the next election as a "fight for the soul of the country", attacking the “snake oil merchants” on the right and left who he claims are determined to block national renewal.

Ministers used their myriad conference appearances to signal that the party is ready to take the fight to Reform UK. Darren Jones, the former Chief Secretary to the Treasury turned Prime Minister’s Chief Secretary, told a Labour Together event that it was time to take a “muscular” approach towards Farage. Chancellor Rachel Reeves accused Reform of being “the single greatest threat to our way of life and to the living standards of working people”, citing, among other things, the party’s opposition to Labour’s workers’ rights legislation and ‘cheering on’ Liz Truss’s mini-Budget’.

It’s the economy stupid!

There is acknowledgment at all levels of the party that without economic growth it will not be possible to achieve all Labour’s other objectives. It is less clear how successful the government will be in achieving that growth.

In his conference speech the Prime Minister said that “the defining mission of this government is to grow the economy” in order to improve living standards, provide economic security and tackle the divisions in society. The Chancellor declared that “growth to improve living standards is the challenge - and investment is the solution.” This would be delivered, she said, by overhauling the planning system, reforming the pensions system, launching a National Wealth Fund and a modern industrial strategy, and signing new trade deals.

The new Exchequer Secretary to the Treasury, Dan Tomlinson, is, by his own admission, “a bit obsessed with economic growth”. A former economist at the Resolution Foundation – who he praised as being themselves “obsessive about economic growth” – he spent his first year as MP as the ‘Government Growth Mission Champion’. He told a fringe meeting that, at the top of his mind, when he thinks about tax changes, “is what will this tax change do for growth”.

A number of speakers at the conference bemoaned the UK’s low levels of productivity. There were also complaints that the Office for Budget Responsibility had waited until after the election before downgrading productivity (this is expect to appear in this month’s economic forecasts). Chris Curtis MP (Co-chair of the Labour Growth Group) said at a fringe meeting that the OBR was at fault for not downgrading productivity before the election when it was obvious it needed to be. If that had happened the effect on the public finances would have been such that the Conservative government would not have been able to afford the national insurance cuts they introduced, he argued.

More tax rises to come, Chancellor signals

During the conference the Chancellor promised to keep taxes “as low as possible” but she came as close as she has to date to acknowledging that further tax increases will be required at next month’s Budget, and began the process of explaining to the public why they are needed.

Asked about possible future tax increases, ministers generally employ a form of words that indicates that that is a decision for the Chancellor and it would be above their pay grade / more than their job is worth to engage in speculation. The Chancellor herself tends to use the formulation that she has no intention of writing her Budget on the Today programme / Laura Kuenssberg show, etc. However in her conference speech and a radio interview she did drop a few hints about her direction of travel.

As usual, these things tend to be done in code, with a nod and a wink from spin doctors to journalists. The relevant lines in Rachel Reeves’ conference speech were those noting that, “[i]n the months ahead, we will face further tests”, and that the choices would be “made all the harder by harsh global headwinds” and by “the long-term damage done to our economy, which is becoming ever clearer”. She then went on to say that she would build “[a] renewed economy, where we reject austerity and support our public services” and would “make my choices at [the] Budget”.

Translated, these have been read – and, the absence of any briefing to the contrary suggests, read correctly – as a statement that taxes are likely to have to rise – possibly substantially – and that this is a result of (a) international factors such as trade wars and the continuing Russia-Ukraine conflict, which has in turn prompted new commitments on defence spending, and (b) the anticipated downgrading of long-term UK economic forecasts by the OBR, specifically as a result of reduced productivity expectations (see above).

The Chancellor was asked directly in a radio interview whether she would have to raise taxes and was perhaps even clearer: “Everyone can see in the last year that the world has changed, and we’re not immune to that change,” she told the interviewer. She declined the opportunity to repeat her statement after the last Budget that she would “not be coming back with… more taxes”. But she insisted that Labour would stick to its manifesto commitments and not raise income tax, national insurance or VAT.

The Exchequer Secretary, in a speech on the fringe, characterised the options facing the government as three-fold: ‘Cameron-style austerity’, slashing public sector investment; the ‘Truss/Farage option’ of borrowing more; and ‘getting a grip’ on the situation, raising taxes and improving public services. The government had chosen the latter, he said, and while he did not explicitly state that further tax increases would be needed, the clear implication was that any new shortfall in the public finances would be responded to primarily with tax increases rather than increased borrowing or cuts. Speaking at the same event Guardian Economics Editor Heather Stewart warned ominously that last year the deal was tax rises for increased public spending, whereas this year it’s likely to be tax rises without anything new in return.

Manifesto pledges still stand – for now

In their 2024 election manifesto Labour promised they would “not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.” Ministers are standing by these commitments, but less certainly than they once did.

The government’s tax options have been severely limited by the election commitment not to raise the three biggest revenue raisers (or not to raise the rates, at least). Responding to speculation that the Treasury might be looking at Budget options which involve breaching this commitment, the Chancellor told Sky News during the conference: "those manifesto commitments stand." This repeated a form of words used by the Prime Minister in a BBC interview, when pressed on whether a VAT rise might be coming.

Darren Jones, now the Chief Secretary to the Prime Minister having previously been Chief Secretary to the Treasury, used the same formulation but expanded upon it, telling Sky that Labour's manifesto "stands today because decisions haven't been taken yet". Asked directly if he could rule out raising VAT or income tax, as promised at the election, Jones responded: "I'm not ruling anything out or anything in. All I'm saying is today the manifesto stands. We've got a budget process to go through, and any decisions will be announced in parliament in the normal way."

Despite the speculation, Number 10 figures and cabinet ministers have been reported by The Telegraph as saying privately that there would be a “very, very high threshold” for breaking the manifesto commitments, with an expectation that such a move would trigger further public anger at an already unpopular government. It is thought likelier that a series of smaller revenue-raising measures will be announced, though there is no guarantee these would prove any less contentious than a single, large tax hike.

MPs offer backing to CGT extension

Income tax and national insurance (NI) rate changes seem unlikely, but further rises in capital gains tax (CGT) are possible, and gained some support at the conference. An extension of the freeze in income tax (and other) thresholds looks probable.

Asked at a fringe meeting whether a further freeze in income tax thresholds would constitute a “tax increase on working people” pensions minister Torsten Bell – who is helping to write the Budget – responded that the questioner should “read the manifesto”. The implication of this is, presumably, that the limitation of the wording in the manifesto to not increasing any of the three rates of income tax means that such a move would not be regarded as a manifesto breach and so is fair game to be put into the Budget. That it will be in the Budget (most probably a two year extension to 2030) is a widely held expectation among both Labour members and outside commentators.

Bell was, until last year, the boss of the Resolution Foundation, a think tank which focuses on low to middle income households. His successors last month put a proposal forward that employee NI should be cut by 2p and income tax increased by the same amount, raising £6 billion from those who pay income tax but not employee NI – including pensioners, landlords and the self-employed. This won support at the conference, including from MP Chris Curtis, who suggested it was “probably a reasonably good idea”. However, while ministers might privately be sympathetic to the idea, it is probably too visibly a breach of the manifesto commitment on income tax to be a runner.

The same applies to increasing the additional rate of income tax to 50%, something put forward by Andy Burnham, the Mayor of Greater Manchester, in a pre-conference interview universally seen as laying the ground for a future leadership challenge. Burnham said there was ‘definitely a case’ for the 50p rate and also that the Chancellor should consider cutting employment tax for lower earners. He described a 10p rate of income tax introduced in 1999 – which was later abolished – as “one of the really innovative and quite interesting things” New Labour did.

Further increases to CGT are a likelier option. These could come in the form of rate increases, in effect equalising treatment of income and gains. The Guardian suggested over the summer that this is being looked at. Curtis was supportive of this too, though noted that the Treasury “think they’ve more or less done this already” and suggested that, if you’re equalising, you would need to index gains to allow for inflation. Other panellists supported this proposal. At a separate event Liam Byrne MP, chair of the Business and Trade Committee, also backed equalising CGT and income tax rates (as well as putting NICs on investment and landlord income).

Other options for raising money from CGT which were put forward at fringe events (as well as in a Demos paper published during the conference) include an exit tax (deemed disposal on departure) and scrapping CGT forgiveness at death. Yuan Yang MP, a member of the Treasury Committee who previously wrote for the Financial Times, was sympathetic to the former. She also posed the question of whether some taxes – and she gave CGT as an example – actually add productive activity to the economy or whether they just enable ‘game playing’. She thought there were lots of opportunities to raise revenue by reducing this game playing.

VAT on healthcare rumour squashed

Ministers have denied having plans to put VAT on private healthcare but other possible VAT increases have been floated, and an increase in the standard rate is thought not to have been ruled out.

As noted above, Keir Starmer was challenged repeatedly in a conference TV interview – by BBC’s Laura Kuenssberg – on whether VAT might go up at the Budget. He replied that he would not “sit here and set out what’s going to be in the Budget”. Kuenssberg responded that he had “on dozens and dozens and dozens of occasions” ruled out raising VAT so why would he not do so now? “The manifesto stands,” the Prime Minister replied. He declined to take up Kuenssberg’s invitation to state that it would stand not just today, but “in perpetuity”.

The VAT on healthcare rumour originally came from a story published in the Daily Mail during the conference. The paper reported that it had been told by ‘Whitehall sources’ that “the Treasury was examining options for adding VAT to services that are currently exempt – with private healthcare and financial services said to be in the firing line.” Unusually this story did prompt a categorical denial from the government, with Health Secretary Wes Streeting telling Times Radio (in respect of VAT on healthcare specifically): “The government won’t be doing it.” That this rumour has been so firmly rebutted while others have been left hanging is notable.

The Mail article claimed that the Treasury is also looking at options to cut the threshold at which small businesses have to register for VAT. Cutting the threshold by two thirds to £30,000 was one of the suggestions in this summer’s Resolution Foundation report.

Unlikely to happen but raising eyebrows on the fringe was the suggestion from economist Tim Leunig that £180 billion could be raised by “putting VAT on everything”. That would, he said, referring to a well-used political metaphor, “put not just a dead cat but a live cat on the table – a tiger in fact!” A dead cat only bounces once at best, he observed. Fellow panellist Jill Rutter of UK in a Changing Europe noted that live cats can also scratch, and this even more true of tigers! Neither of the MPs on the panel endorsed the suggestion.

Conference motions include wealth and windfall tax proposals

For the second year in a row the Labour Conference passed a motion calling for the introduction of a wealth tax. For the second year in a row the Chancellor is expected to ignore it.

The Public Spending motion (pages 21-23 of this report) , passed on Monday afternoon, was proposed by a number of trade unions, led by Unite. It covers a range of topics, from energy prices to workers’ rights to funding of fire and rescue services. Arguing that the “cost-of-living crisis is a political choice” it calls on the government to “reverse Tory cuts and austerity”, committing that any gaps in public expenditure will be remedied “through a system of progressive taxation where the wealthy pay their fair share, introducing a wealth tax on the richest to raise revenue for public services and support struggling households.”

Supporting the motion, Fire Brigades Union general secretary Steve Wright urged the government to “act decisively by introducing a progressive wealth tax”, telling them that the fire and rescue service is in a “state of emergency”. The motion also called on the government to “extend and toughen the windfall tax on energy giants” to fund the freezing of the energy price cap for at least 12 months.

Motions passed at Labour conference are considered official party policy but the party is not bound by them, either for future manifestos or in terms of government policy. It is the National Policy Forum and ‘Clause V’ meeting before an election which decides which policies will appear in a general election manifesto.

A number of other tax-related motions proposed by constituency Labour parties (CLPs) failed to make the cut for debate. These included:

• a motion from North West Norfolk CLP calling on the government to implement higher taxation of gambling companies,
• a motion from Hartlepool CLP calling on the government to review council tax and explore alternative tax models for local government funding “such as proportional property tax or local income tax”,
• a motion from Bishop Auckland CLP proposing “raising taxes on capital gains; ending higher rate relief on pension contributions; tackling the loophole on high paid partnerships; and taxing internet giants to finance reform of business taxes”,
• a motion from Greenwich and Woolwich CLP calling on the government to consider “raising taxes on capital gains; ending higher rate relief on pension contributions; tackling the National Insurance contributions loophole on high paid partnerships; reforming the outdated basis of council tax bands and raising the digital services tax to ensure a level playing field in retail and finance business rate reform”,
• a motion from Wellingborough and Rushden CLP urging the government to increase capital gains tax,
• a motion from St Ives CLP calling on the government “to end the exemption of business premises holiday lets from both council tax and business rates”.

Interest in taxing wealth runs ahead of support for a wealth tax

Support for taxing wealth at the conference went beyond the passing of a motion and includes high profile party figures. But not everyone who wants to tax wealth wants a wealth tax.

Well attended fringe meetings organised by CIOT and CenTax and by Tax Justice UK and the Patriotic Millionaires campaign group both testified to the level of interest in taxing wealth. It would be wrong, however, to assume that both meetings were packed with supporters of a wealth tax on the TJUK / Patriotic Millionaires model. Questions at both events ranged broadly around the taxation of wealth and the wealthy and neither of the MP panellists at the two debates (Lloyd Hatton and Noah Law respectively) offered explicit support for a wealth tax. Hatton’s focus was effective enforcement of existing tax rules in relation to the wealthy, while Law emphasised that his interest was in taxation of wealth generally, without coming down for or against a wealth tax.

Putative leadership challenger and Mayor of Greater Manchester, Andy Burnham, is one of the higher profile advocates of higher taxes on wealth within the party, frequently arguing that “we have overtaxed labour and undertaxed wealth”. In an interview ahead of the conference he expressed support for higher council tax on high value homes in London and the South East as well as saying there was ‘definitely a case’ for the reintroduction of a 50p top rate of income tax. However, while he has at times sounded like he might be sympathetic to the idea of an annual wealth tax he has not explicitly endorsed the idea. The closest he has come was back in 2022 when he argued for a one-off wealth tax of the kind put forward by the Wealth Tax Commission to be ‘put on the table’.

Similarly, Welsh First Minister Eluned Morgan has been reported as backing a wealth tax, having written, in a document published on the eve of the conference, that “it is time to make bold choices - taxing those who can afford it and putting that money where it belongs: into the lives of children”. However, again, it is not clear that this translates into support for an annual tax on total wealth as opposed to, say, higher CGT or higher taxes on top earners.

A wealth tax does, however, have the vociferous support of an energetic group of campaigners who are prepared to use disruptive tactics to make their case. A speech by Treasury minister Torsten Bell at a Fabian Society event at the conference was interrupted by three protestors waving banners and chanting “tax the super rich”. Earlier the same day a larger group from Green New Deal Rising set up a mock budget briefcase scene outside the conference, featuring a person impersonating Rachel Reeves between two red briefcases – one labelled ‘Billionaire’s Budget’ and the other ‘People’s Budget’.

The question of a wealth tax was put to the tax minister, Dan Tomlinson, at an IPPR / CenTax fringe meeting. The minister responded by saying that while the government is “always looking at what reforms we can make… calls for a wealth tax miss what we are doing already”. He pointed out that, in the UK, “we do have wealth taxes even if we don’t have a wealth tax”. “Some countries that have a wealth tax don’t have taxes we have,” he added, echoing a response the Chancellor gave in the summer which suggested that Switzerland had replaced inheritance tax and CGT with a wealth tax.

Two speakers at the same fringe meeting highlighted potential problems with a wealth tax. Heather Stewart, Economics Editor at The Guardian, said she had been told by ‘Treasury types’ that one reason a wealth tax isn’t a runner is that the OBR won’t ‘score it’. She worried that this focus on what the OBR will put in its spreadsheet was harmful to good policy. Andy Summers of CenTax, meanwhile, said that one reason there is no prospect of a wealth tax in the next budget is that there is no institutional ability to collect it. He suggested HMRC need to develop that institutional capacity if such a tax is to be a possibility in future. This was a similar point to that made by Lloyd Hatton MP at the CIOT / CenTax debate when he suggested that HMRC lack the necessary information, skills, resources and appetite to ensure that the wealthiest pay their fair share. 

MPs seek property tax reform; ministers give little away

Rumours that the government is looking at big reforms to property taxation got relatively little attention at the conference, but some MPs are advocating significant changes.

Housing Secretary Steve Reed told a conference fringe meeting that council tax revaluation “is not on our agenda”, saying “we’ve got enough on our hands”. However his statement has not quelled mounting speculation that the government is planning significant reforms to property taxes.

These included a summer report in The Guardian that SDLT could be replaced by a new tax on the sale (rather than purchase) of homes worth more than £500,000. Additionally, senior ministers are said to have asked officials to study how a new “proportional” property tax (to replace council tax) could be implemented and to model its impact. Treasury officials are said to be drawing on the findings of a report from the centre-right thinktank Onward, by former government adviser Dr Tim Leunig, which proposed replacing council tax and SDLT with a proportional property tax, the revenues of which would be split between central and local government. (More on these rumours and the Onward report here.)

Leunig spoke at a fringe meeting at the conference alongside Labour MPs Yuan Yang and Chris Curtis. He remained tight lipped about whether ministers or officials had been in touch to discuss his proposals, but both Curtis and Yang were supportive of reform in this area, albeit without backing specific changes. Curtis said he saw an opportunity to make “bold radical changes to the tax system that we all know we need”. Property taxes, alongside CGT, were an example he gave. Yang endorsed his analysis, saying: “I sign up to the Chris Curtis budget.”

Other MPs have gone further. According to a report in The Observer at the start of the conference 16 MPs have written to the Chancellor urging her to replace “deeply unfair, inefficient and outdated” council tax and SDLT with a proportional property tax. The letter and full list of signatories do not appear to be online but the paper says they include Jo White, MP for Bassetlaw and chair of the red wall caucus of Labour MPs, and Jonathan Brash, MP for Hartlepool and leader of the Blue Labour group.

In this context it is worth noting the emphasis that the new tax minister, Dan Tomlinson, puts on growth (see above), and that SDLT is something often put forward as an impediment to growth. (For example Meg Hillier MP, chair of the House of Commons Treasury Committee, expressed concern at the conference that SDLT can make it difficult for people to move.) Additionally, with a record as a housing campaigner, Tomlinson is likely to take a particular interest in this area. Ministers have, predictably, batted away rumours of reforms saying they would not get into discussions about what might be in the Budget.

There remains interest in land value taxation among some in the party. At a fringe meeting Cornish MP Noah Law – in response to a question from Senedd member Jenny Rathbone – said he found the case for land value tax “compelling”.

No sign of concessions on inheritance tax changes

The government appears set on pressing ahead with reforms to inheritance tax and ministers did their best not to talk about the issue at the conference.

Farmers from across the UK descended on Liverpool to protest about the government’s plan to bring farmland into scope for inheritance tax. Demonstrators who gathered on the Sunday held signs reading, among other things, “Starmer help the farmer”, “No farmer, no food, no future” and “With our farmers”.

At a breakfast meeting organised by the National Farmers Union (NFU) Emma Reynolds, Secretary of State for Environment, Food and Rural Affairs, did not directly mention the changes, though her statement that “I am here to listen and to ensure the government understands your concerns” and a promise of a “reset” in relations with the farming community can be seen as alluding to them.

She was followed by NFU President Tom Bradshaw who said the policy had been “the straw that broke the camel’s back” for farming. He urged the government to consider an alternative model proposed by CenTax. (CenTax has suggested a “minimum share rule”, requiring that at least 60% of the deceased’s estate be made up of qualifying farmland or business assets to claim full relief, with farms retaining full relief up to £5 million per person.) Bradshaw said that although that model is “far from perfect”, it is “much better than where we are today”. He hoped the government and NFU would be able “to work together to look at that proposal”.

Asked about the future of IHT at a CenTax / IPPR fringe meeting the Exchequer Secretary said the revenue was needed to help working age families who are struggling. He said the amount being raised from IHT is going to continue rising because property prices are continuing to rise and thresholds are not going up. CenTax’s Andy Summers said the concerns raised by farm and business groups are about how reform falls on active farmers and business owners. Focusing the tax rise on those passively investing is a way forward to square the circle, he suggested. The minister did not respond to this point.

At a discussion on wealth taxes the IHT reforms were used as an example of the resistance further measures in this area would encounter. Nicola Smith of the Trades Union Congress said that the “huge campaign” against the IHT changes was funded by “big interests” rather than small family farms.

Summer rumours that rules on the gifting of money and assets will be tightened at the Budget, for example through a cap on lifetime giving or changes to the taper rate, were not raised at any conference event CIOT attended; nor were changes to taxation of inherited pension pots.

News in Brief

At a reception on the conference fringe a representative from the Association of Convenience Stores urged the government to “keep modernising” business rates. James Murray, Chief Secretary to the Treasury, responded that “we know how important getting business rate reform right is”.

Business and Trade Committee chair Liam Byrne MP said the government needed to ‘press on’ with closing the tax gap and highlighted the role of HMRC customer service in achieving this. It is unacceptable that there are four million phone calls that don’t get answered, he said.

A questioner from Friends of the Earth asked the Exchequer Secretary about taxing polluters. The minister replied that the government is introducing a carbon border adjustment mechanism “to make sure we’re not offshoring emissions to other countries”.

A Social Market Foundation fringe on gambling reform discussed proposals put forward by the IPPR and endorsed by Gordon Brown to increase taxes on gambling and gaming machines to help fund the abolition of the two-child benefit cap. Alex Ballinger MP, who has co-organised a letter signed by over 100 Labour MPs calling on the government to raise taxes on online gambling operators, repeated his plea. Baroness Twycross, the minister with responsibility for gambling, said the government has already introduced a statutory levy on gambling firms to help tackle harms, and warned there was a “real risk” that higher duties would drive gamblers towards the ‘black’ and ‘grey’ markets.

A number of MPs expressed support for tax simplification. “Simpler is better,” said Yuan Yang, arguing that complexity allows “gaming of the system”. We have a large tax code, full of “nooks and crannies”, which “sets up perverse behaviours” such as the ability to incorporate and pay dividends in order to avoid higher rates of tax. Both Yang and Lloyd Hatton called for a full evaluation of the effectiveness of all tax reliefs.

A questioner from Tax Justice UK suggested there should be a “zero-based review of the tax code”. The Exchequer Secretary did not endorse this but said that, to give credit to HMRC, “we know more now than we did”.

A speaker from Ipsos presented polling data on the fringe, including some on tax. It showed that the decision to increase VAT on school fees is popular, while employer NICs increases and IHT changes for farmers are deeply unpopular. At 33%, the economy is the second biggest issue in voters minds (behind immigration). 33% is also the share of people considering voting Labour who say tax would be their deciding factor. Lucy Powell MP, a contender for the party’s deputy leadership, said that “Red Wall and ’liberal’ metro voters are united on the need for fairer taxes”. However Liam Byrne MP warned that tax reforms may not be successful in swaying Reform voters as, these voters “are profoundly sceptical that tax money is well spent” so don’t trust that extra revenue would result in better outcomes.

At a fringe event Darren Jones MP, Chief Secretary to the Prime Minister, said that the machinery of government is “too slow, we’ve got to fix it”. Asked if he wants to be Chancellor, he responded, “no, not really”. On the November Budget, he acknowledged there were “definitely challenges” and that the government faced “a difficult 8 or 9 months”. However, once ministers get a grip of the machinery of government, voters will start to see improvements, he maintained.

Jones was asked by an audience member whether the government should introduce a specific levy to fund rearming of the armed forces to counter Russian aggression. The minister acknowledged that we live in a “very volatile world” but said that “the challenge with a levy or bond is that it a tax or borrowing and we made it clear in our manifesto that taxes were already historically high”.