Whilst much of the 2019 General Election focus has been on the parties spending commitments, much less attention has been paid to the taxation approaches each party will take.
Here Phil Hall, head of Public Affairs and Public policy at AAT examines the key tax pledges made by the main political parties.
The Conservative Party
The Conservative Party manifesto confirmed that a Conservative Government will raise the threshold for paying National Insurance Contributions (NICs) from £8,632 today to £9,500 in April 2020, with an ultimate ambition to raise it further to £12,500. The ultimate ambition will see the NICs threshold aligned with the Income Tax threshold.
This will benefit millions of workers by both reducing almost all workers National Insurance Contributions and by ensuring over 2 million people no longer make any contribution at all.
However, such a move doesn’t come cheap. The first step of increasing the threshold to £9,500 will cost over £2bn a year, increasing it to £12,500 will cost around £10bn a year. That’s £10bn that will have to be found from tax increases elsewhere unless cuts are to be made.
Possible areas where the Conservatives might have looked to recoup some of the £10bn cost of this proposal include:
- Ending the NICs exemption for those in receipt of the state pension (1.2m pensioners are in employment and paying no NICs) which would raise over £1.5bn annually
- Increasing NICs for the self-employed (9%) to the same rate as that paid by the employed (12%) which would raise £3bn+ per annum
- Increasing the overall rate of National Insurance Contributions for the employed. Each additional 1% is likely to raise in the region of £5bn+
However, none of these measures is now possible given the Conservative Party manifesto also includes a so-called, “triple tax lock” a repetition of their 2015 manifesto pledge. This means the rate of National Insurance (and VAT and Income Tax) will not rise under a Conservative Government.
The triple lock may make political sense but from an economic perspective, it’s heavily restrictive. The lock leaves serious questions about where the money is going to be found to pay for increases to the NICs threshold, not to mention the numerous other multi-million pound spending commitments the Conservatives have made in recent weeks.
The Liberal Democrats
The Liberal Democrats have promised £36bn of tax rises.
This includes restoring Corporation Tax to 20%; raising an additional £5bn through a reformed Air Passenger Duty regime and £6n of anti-avoidance measures.
They are also committed to ending the Contractor Loan Charge, reviewing IR35, replacing business rates with a land value tax and building on the OECD’s proposals to require multinationals to pay a level of tax which is more closely related to their sales in each country in which they operate.
They have also promised to scrap the Marriage Tax Allowance as proposed by AAT last year. It is worth noting that this is worth a maximum of £250 a year so its removal is very unlikely to influence an individual’s decision to marry. It’s also taken up by less than half of those who are eligible, the primary beneficiaries are men (84%) and over a third of recipients (35%) are above state pension age.
Pleasingly, the Liberal Democrats have also pledged to introduce AAT proposals to make the Prompt Payment Code compulsory for all companies with 250+ employees and for the Small Business Commissioner to enforce this. Although this isn’t related to tax, given a quarter of business insolvencies are due to late payments, this should mean a reduction in business closures and consequently increased tax receipts.
There are also plans for additional VAT variations on items such as electric vehicles and a range of new taxes and duties such as a Cannabis Duty. A further complication to the tax system will come in the form of Stamp Duty payments being based on the energy rating of a house. Although many of these appear well intentioned, the impact on the bureaucracy this will create does not appear to have fully considered.
The Labour Party
The Labour Party manifesto commits the party to introduce a host of new taxes, from a Financial Transactions Tax and a new Second Homes Tax to a “Super Rich” rate of income tax for those earning £125,000 a year or more.
Simultaneously, myriad increases to existing taxes are promised. For example, Income Tax for those earning over £80,000 per annum and increases in Corporation Tax to 21% for small businesses and 26% for large ones.
Although they do promise there will be no increases in the headline rate of VAT, it will be extended to cover various areas, for example, private school fees. The extension of existing taxes and duties is a common theme in the manifesto, for instance, Stamp Duty on shares will be extended too.
Like the Liberal Democrats, they also believe £6bn can be raised through new anti-avoidance measures.
If elected, Labour will adopt an AAT recommendation to scrap Entrepreneur’s Relief and like the Liberal Democrats, they have also pledged to scrap the Marriage Tax Allowance, saving the taxpayer billions of pounds.
Their manifesto also promises that Making Tax Digital (MTD) will not become mandatory for any business operating below the VAT threshold. This is not great news for reducing the tax gap but may have the support of some small business groups. For those small businesses who are keen to take advantage of the many technological and tax advantages of MTD, they can voluntarily participate as already happens today.
Finally, the Labour Party manifesto also contains a specific reference to review all corporate tax reliefs within the first six months of a Labour Government, with the help of AAT, the National Audit Office, Office of Tax Simplification and others. This is also estimated to save several billion in taxpayers money.
- Notable contributions on tax from the other parties include both the Brexit Party and UKIP pledging to abolish Inheritance Tax – AAT would like to see the various exemptions and reliefs removed in tandem with a halving of the headline rate from 40% to 20%.
- The SNP have again demanded the devolution of tax powers to the Scottish Government. Like the Conservatives, they have also promised a reduction in NICs contributions and promised no increase in VAT. Like the Liberal Democrats, the SNP also want a review of both IR35 and the Loan Charge. They have also demanded a comprehensive inquiry into Making Tax Digital.
- The Green Party have a raft of tax promises in their manifesto. These include “green” taxes you might expect, like a Carbon Tax and supporting the transition to plant-based diets by phasing in a tax on meat and dairy products. However, they have also focussed on a range of more traditional taxes as needing bold reform.
Further reading on Tax:
- Opinion: what are the prospects for more devolved taxes?
- Will the UK become a tax haven after Brexit?
- Power up your tax knowledge with AAT
Phil Hall is AAT's Head of Public Affairs and Public Policy.