General election: the parties’ tax plans

The election manifestos have landed and with them a little more detail around the parties’ planned tax measures.

The Conservative Party manifesto, launched on 24 November, includes:

• a promise not to raise rates of income tax, NICs or VAT for the whole of the next Parliament (the ‘triple tax lock’);
• raising the NICs threshold to £9,500 next year;
• keeping the state pension ‘triple lock’ (rising in line with the greater of earnings, prices or 2.5%);
• increasing the NICs employment allowance for small businesses from £3,000 to £4,000;
• a one-year employer NICs holiday in respect of employees hired up to one year after they have left the armed forces;
• increasing the R&D tax credit rate from 12% to 13%;
• increasing the structures and buildings allowance (SBA) from 2% to 3%;
• introducing the digital services tax (for which draft legislation was published in July);
• introducing a 3% stamp duty surcharge on non-UK resident individuals and companies purchasing residential property in England and Northern Ireland (following consultation on the announcement at Budget 2018);
• introducing a plastic packaging tax from April 2022, based on plastic packaging with less than 30% recycled content charged at £200 per tonne (following consultation on the announcement at Budget 2018);
• removing VAT from female sanitary products (currently at 5% to comply with the EU VAT directive);
• reviewing and reforming entrepreneurs’ relief;
• consolidating existing anti-evasion and avoidance measures and powers into a new ‘anti-tax avoidance and evasion law’, while introducing a new package of anti-evasion measures and stiffer sentences for serious tax fraud;
• eventual devolution of corporation tax to Northern Ireland and possible devolution of air passenger duty for short-haul flights;
• reviewing alcohol duty to ensure the system supports British drink producers; and
• a one-year enhancement to business rates discount for retail businesses and extension of the discount to small music venues, cinemas and pubs, followed by a ‘fundamental review’ of the business rates system.

Institute for Fiscal Studies director, Paul Johnson, was underwhelmed. ‘As a blueprint for five years in government the lack of significant policy action is remarkable’, he commented.

Johnson described the triple tax lock as ‘part of a fundamentally damaging narrative, that we can have the public services we want, with more money for health and pensions and schools, without paying for them’.

The Labour Party manifesto, launched on 21 November, and the party’s ‘fair tax programme’, includes:

• a windfall tax on oil companies to create a ‘Just Transition Fund’ for a greener economy, expected to raise £11bn;
• increasing the main rate of corporation tax to 21% from April 2020, 24% from April 2021 and 26% from April 2022 and reintroducing a small profits rate;
• introducing unitary taxation of multinationals;
• increasing income tax to 45% for those earning more than £80,000 a year and 50% above £125,000;
• taxing capital gains at the same level as income tax and abolishing the lower income tax rate for dividend income;
• scrapping non-domiciled status;
• requiring public filing of tax returns for individuals earning over £1m;
• maintaining the state pension ‘triple lock’ (rising in line with the greater of earnings, prices or 2.5%);
• introducing a 20% levy on purchases of UK residential property by offshore companies and trusts, supplementary to SDLT surcharges;
• extending SDRT to create a financial transactions tax;
• reducing the number of advance thin capitalisation agreements by adopting a general presumption against making these agreements;
• removing the trading exemption for gains made by foreign investors involved with commercial property transactions;
• replacing the 25% ownership rule for exempting corporate enveloping of property with a £1m exemption limit;
• replacing the GAAR with a general anti-avoidance rule;
• removing charitable status VAT reliefs from private schools; and
• requiring larger companies with more than 250 employees to build up inclusive ownership funds to hold 10% of their share capital, with dividend payments distributed equally among all employees, capped at £500 a year;

A Labour government would also task HM Treasury with conducting a review of corporate tax reliefs, with full terms of reference to be published within a month of the new government entering office and reporting to Treasury ministers after six months. The review would be informed by an expert panel including HMRC, OTS, NAO, trade unions and business stakeholders. The objective of the review would be to achieve efficiencies of 1% of total expenditure on tax reliefs, estimated to be around £4.3bn, through reductions in corporate tax reliefs by the final fiscal year of the Parliament.

Expressing doubts about the feasibility of these tax proposals, Stuart Adam, an economist at the IFS, said: ‘Labour claims its measures would raise £80 billion in 2023/24, with most of this coming from increasing taxes on companies and their shareholders. This would imply the UK raising more in corporation tax than any other G7 country. The biggest tax rise is an increase in corporation tax rates, which is unlikely to bring in as much revenue as Labour hopes, at least in the longer term. Increases in corporation tax would affect far more than the very rich: much of the burden would ultimately be felt by employees and customers.’

The Liberal Democrat manifesto, launched on 20 November, includes:

• restoring corporation tax to 20%;
• abolishing the CGT annual allowance and instead apply a single allowance to capital gains and salaries;
• increasing air passenger duty, with reductions for those who take one or two international return flights per year;
• replacing business rates in England with a commercial landowner levy, based solely on the land value of commercial sites rather than their entire capital value;
• introducing a new general anti-avoidance rule and setting targets for HMRC to reduce the tax gap;
• ending retrospective tax changes like the loan charge and reviewing recent proposals to change the IR35 rules;
• scrapping the married couples allowance.

Commenting on the plans, which the Liberal Democrats claim would raise £37bn a year, Stuart Adam said: ‘A little under half of this comes from straightforward increases in the rates of income tax and corporation tax. The rest comes from a range of measures with less certain revenue implications. Some would be more welcome than others, but most of them complicate the tax system.’

In particular, the IFS notes that abolishing the CGT annual allowance ‘would extend the administrative burden of CGT to many more people’, while the ‘dubious’ anti-avoidance measures promise nearly £6bn a year ‘without actually specifying which activities would be taxed more than they are now’.

The proposal to double revenue from air passenger duty, falling mainly on frequent fliers, would require ‘an entirely new administrative mechanism to monitor how many flights people have taken in a year’.