Reeves will have to turn to wealth taxes to plug the £30bn black hole

Rachel Reeves recognises that if she is to march into No 11 Downing Street on July 5 it would be a big mistake to hit voters with huge tax rises straight away.

The tax changes Labour has outlined so far would add a mere £3.6billion of revenue in the next financial year, leaving a huge shortfall and no guidance as to how it might be filled. 

In spite of protestations that there would be no taxes on prosperity and wealth, that is what Reeves is proposing.

The proposal to impose VAT on public school fees and end their charitable status, and the closing of loopholes for the non-domiciled rich, are wealth taxes.

Even the promise to target tax avoiders with the aim of eventually collecting £5billion will hit the wealthy with access to sophisticated advice. 

The burden may eventually fall on the self-employed and smaller enterprises. 

We now know from the International Monetary Fund’s annual inspection of the British economy that there is potentially a hole of up to £30billion in the public finances to be filled. 

The Tories calculate that if Labour’s spending promises are totted up, the party will need to raise a further £38.5billion in the forecast period to 2028-29. 

This is despite the Shadow Chancellor’s assertion that Labour ‘won’t put forward anything that’s not fully costed and fully funded’.

Her favourite method of raising revenues is pledging to close ‘loopholes’, one endorsed last month by IMF fiscal chief Vitor Gaspar.

Big money: The Tories calculate that if Labour’s spending promises are totted up, the party will need to raise a further £38.5bn

The proposal offers endless possibilities, but closing loopholes can have disastrous consequences. 

Labour’s plan to abolish tax breaks for North Sea oil exploration would simply kill new investment stone-dead and drive big oil to more friendly waters such as deep water drilling in the Gulf of Mexico.

Here are five ways Labour could make Britain poorer by closing so-called loopholes, which amounts to a polite name for tax increases:

VAT: This is the biggest pot of gold, identified by the Institute for Fiscal Studies, which calculates that reduced rates and exemptions cost the Exchequer £100 billion. Many goods and services are exempt from the 20 per cent rate or pay a lower 5 per cent.

Pensions: Labour has a history of penalising private pension saving. Money spinners could include re-imposing the lifetime limit on pension savings. Or, just as contentious, cutting the tax relief paid to top rate taxpayers.

Carried interest: This is a fancy name for the vast profits made by partners when a business is sold. It is taxed as a capital gain, at 20 to 24 per cent for higher rate taxpayers, escaping income tax at 45 per cent. But scrapping it could drive some dealmakers elsewhere.

Housing: The sale of main homes is exempt from capital gains taxes, resulting in big tax-free windfalls for some owners and an inter-generational divide. But taxing main homes would be political suicide.

Bank taxes: Windfall taxes on lenders are an easy target when their profit has been soaring simply due to rising interest rates.

Past experience with Labour suggests a preference for stealth taxes, which are little understood, rather than changes to income tax and VAT. 

And Reeves already has committed not to reverse Jeremy Hunt’s 4 percentage point cut in employee National Insurance contributions. But there are no shortage other ways for her to try to squeeze us all.