An election campaign with a lot to say about tax

This has been a general election campaign unusually rich in tax content, with some radical tax ideas from Labour, explicit tax raising proposals from the Liberal Democrats and what is best described as a safety-first approach to taxation from the Conservatives. A common complaint in recent years, that there is little to choose between the main parties, has not applied in the 2017 election.

 

Labour, in particular, has opted for tax policies that are unashamedly left wing. John McDonnell, its shadow chancellor, has defined an annual income of £80,000 or more as rich, and proposes a 45% marginal rate of income tax at that level, rising to 50% at £123,000. Currently, the 45% additional rate of income tax starts at £150,000.

 

Labour also wants to reverse the coalition and Tory cuts in corporation tax. Corporation tax, which is scheduled to fall to 17% by the end of the decade from its current 19%, would instead rise to 26% under Labour’s plans. And, in direct opposition to long-standing City calls to abolish the 0.5% stamp duty on share transactions, Labour would instead extend it as a ‘Robin Hood’ tax to a far wider range of financial transactions.

 

Such proposals, which Sir Humphrey in Yes, Minister would describe as ‘brave’, look foolhardy in the context of Brexit, when footloose highly paid individuals, companies and City firms could easily decide that their future will be better served inside the EU and the single market. They make the Liberal Democrats, who would add 1p in the pound to every income tax rate to spend on the National Health Service, look timid.

 

The Conservatives, for whom tax has in the past been an election winner, have this time decided that discretion is the better part of valour. So, instead of the tax pledge of 2015, to eschew increases in income tax, corporation tax, VAT and national insurance, this time the party has contented itself with achieving the lowest taxes that are possible.

 

Philip Hammond, the chancellor, was burnt by the 2015 tax pledge when he announced a rise in class 4 NICs in his March Budget and was forced to abandon the plan a week later.

 

The Tories, instead of a firm tax pledge, have said that they will keep taxes as low as possible, though May has recommitted to her predecessor’s policies of increasing the personal income tax allowance to £12,500 and the higher rate threshold to £50,000. Corporation tax will be cut to 17%. The Conservative hope is that this leaves plenty of clear blue water on tax between them and their opponents.

 

It may do so, and the Tories expect to be in government after 8 June, despite a narrowing in the polls as the campaign has progressed. Unlike David Cameron, who made pledges in the 2015 election in the expectation that some of them could be bargained away in coalition negotiations, the prime minister is assuming a Tory majority.

 

What have we learnt from the past few weeks that may guide us in the future when it comes to tax? 

 

There is still an appetite on the left for old-fashioned redistributive tax policies. For Jeremy Corbyn’s Labour Party, the better-off have got off far too lightly in the past few years. So has the City, blamed for the financial crisis for which we are still paying. And so has business, the target of the Conservative cuts in corporation tax.

 

Such old-fashioned redistribution marks a break with New Labour which, until the very end of its time in office, set a ceiling of 40% on the top rate of tax. Under Tony Blair and Gordon Brown too, the importance of not killing the goose – the City – which laid the golden egg was important.

 

It also chimes in with public opinion more than many of us find comfortable. Perhaps telling most voters that their taxes will not go up but those of others will is always going to be popular, or perhaps Labour has tapped into a new populist mood. But with a more electable leader, there would be a serious chance of these tax policies being implemented. We should take note of them.

 

For while these highly redistributive tax ideas may not be what we see put into practice after this election, they have not necessarily gone away. If the May government is re-elected and makes a mess of Brexit or if, as is likely, inequality rises again under the impact of the cash freeze on benefits at a time of relatively high inflation, Labour may yet stage a comeback, if not under its present leader.

 

The other strand, from the Liberal Democrats, that only a modest increase in one tax is needed to solve most of the problems besetting the public services, is in effect a re-run of the party’s policy of the 1990s. Again, to voters it is quite an attractive idea, in a way that telling them it would take very big tax increases to do the job would not.

 

Both Labour and the Liberal Democrats had the freedom to be specific with their tax pledges, whatever the damage to an economy facing significant post-Brexit challenges, because neither party expects to be in government. The Tories, who do, have been much more circumspect, deciding after Hammond’s March budget mishap that the less specific a governing party’s tax programme, the better. This is not, I think, a prelude to some big tax hikes after the election, though the NI proposals of last March will be revisited. It is a deliberate strategy of not offering too many hostages to fortune.

 

Theresa May has been criticised for including in her manifesto some policies lifted almost directly from Labour’s manifesto in 2015 when the party was led by Ed Miliband. It appears safe to assume that she will not be borrowing any of the tax policies outlined in the Corbyn Labour manifesto of 2017.