Election Promises on Tax: What Do the Two Main Parties Say?
The Conservative Party’s manifesto is rather lacklustre as far as its tax proposals are concerned. Labour’s plans, on the other hand, are bold and sweeping – but have attracted widespread alarm. Here, we look at the two main party’s key proposals.
The Conservatives
In his opening ‘Guarantee’, Prime Minister Johnson states: “We want to move on, with our programme of investment in education, infrastructure and technology, to create a high-wage, high-skill, low-tax economy.” So, what’s the substance?
For the individual, the Conservative Party promises not to raise the rates of income tax, National Insurance or VAT (the so-called ‘triple-lock’). It will also raise the NI threshold to £9,500 next year which means a tax cut for (says the manifesto) 31m million workers.
And what about businesses? Corporation taxes have already come down significantly and the Prime Minister recently announced that the planned further reduction to 17% next April will be postponed.
In its manifesto, the Conservatives say they will back entrepreneurs and innovation saying: “We want to be a nation of start-ups, and of successful scale-ups. We have more ‘unicorns’ – new billion-dollar tech companies – than any other nation in Europe.”
It pledges to increase the research and development (R&D) tax credit rate to 13%; review the definition of R&D (with the aim of incentivising “important investments” in cloud computing and data); and will also review and reform Entrepreneur’s Relief.
Self-employment is also recognised in the manifesto, with a commitment to launch a review exploring better support for the self-employed: improving access to finance and credit and making the tax system easier to navigate, for example.
Further tax evasion measures will be taken along with measures to reduce opportunities for aggressive tax avoidance (the manifesto notes a £35 billion gap between the amount of tax that should be paid and is actually collected). It plans introduce new anti-tax avoidance and evasion law which would see maximum prisons sentences doubled for the most ‘egregious’ frauds and new anti-evasion measures.
Labour
Labour’s manifesto is far-reaching and radical, and the business community is concerned. It describes this election as “the fair taxes election”, so what is up Labour’s sleeves?
For individuals, there will be a new 45p tax rate for those earning over £80,000 (equating to 5% of the population); and 50p for those earning over £125,000. NI and income tax rates for everyone else will be frozen.
CGT and dividends would be brought inline with income tax rates. Further plans include:
· A second homes tax equivalent to 200% of the council tax bill for the property.
· A VAT charge on private school fees at 20%.
· The inheritance tax threshold will be kept to a maximum of £650,000.
For the business community, a Labour government will raise corporation tax to 26% (with a new ‘small profits’ rate at 21% for companies with profits of less than £300,000 a year) and introduce a new financial transactions tax. On the basis of Labour’s figures, this would raise more in corporation tax than any other G7 country and more than almost anywhere else in the OECD, say commentators.
One describes the proposed hike as “insane”.
Oil and gas companies will also attract an additional windfall tax (to cover the costs of climate damage). Entrepreneurs’ relief would be scrapped and tax breaks for research and development funding will face a crackdown.
Labour also promises to “launch the biggest ever crackdown on tax avoidance and evasion”, though little substance is given on the ‘how’.
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