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Comparing election manifesto tax issues

1st Jun 2017
election
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The polls show the race between the main parties has tightened since the general election was called, so the result could be no clear majority for one party, leading to some trade-offs.

Main parties

We have covered the Labour party tax and business policies and their controversial plan to outlaw certain types of umbrella employment companies. The Conservative manifesto walked a tightrope between investment and lower tax rates, while the Liberal Democrats concentrated on Brexit issues.

If there is a hung Parliament there will certainly be some compromises to be made on tax policies. I have compared the published positions on the key tax issues below. If the view of the party is not mentioned, that is because I can’t find a reference to it in their manifesto.

Income tax

The Lib Dems advocate a 1% rise in all income tax rates to raise £6bn for the NHS and social care services. The Scottish Nationalist Party would support an increase in the top rate of income tax from 45% to 50% on incomes more than £150,000, but only on a UK-wide basis as they fear tax avoidance if that higher rate only applies to Scottish residents. The SNP also want a new tax on banker’s bonuses, but don’t specify if that will be on a UK-wide basis as well.

UKIP want to raise the 40% threshold to £55,000 and restore the personal allowance to those earning more than £100,000. The Conservatives promise to take the 40% threshold to £50,000 by 2020 and the personal allowance to £12,500 by the same date. The Labour Party will introduce a new income tax band at £80,000, but it is not clear what tax rate will apply from that point.

Corporation tax

The SNP opposes further cuts in corporation tax, but doesn’t mention any increases. The Labour Party has said it will take the main rate of corporation tax back to 26% over the next decade and reintroduce the 21% rate for small companies. The Green Party plan to increase corporation tax to 28% for large companies, and presumably (not stated) reintroduce a lower rate of CT for small companies. The Lib Dems want to restore the rate of CT to 20%.

The Conservatives reiterate their plan to reduce corporation tax in the rest of the UK to 17% by 2020. They also continue with their stated aim to devolve corporation tax raising powers to Northern Ireland, but not to Scotland. Plaid Cymru (Welsh Nationalist) want to be able to set their own corporation tax rates in Wales.

MTD

The SNP wants to phase in Making Tax Digital quarterly reporting over a five year period, and will consider calls for exemptions for unincorporated businesses and those who are not VAT registered. In contrast the Labour Party says it will exclude small businesses from MTD quarterly reporting, but it doesn’t define what it means by a small business.

National insurance

The Green Party would remove the upper cap on employee’s NIC, so that the wealthiest pay more. The Labour Party and the SNP both promise no increases in the personal rates of NIC.

The Conservatives plan to introduce another one year employer’s NIC holiday for businesses who take on ex-service personnel. A similar NIC holiday policy was not a great success when it was implemented for new businesses outside southern England.

VAT

The SNP and UKIP both oppose increases in the rates of VAT and insurance premium tax. Following Brexit the UK would be free to set its own VAT rates, and even replace that tax completely. UKIP would remove VAT from a range of goods and services, including hot take-away food, domestic fuel and energy bills. The SNP and Plaid Cymru want to support the tourism industry by reducing VAT in the hospitality sector.

The Labour Party would extend VAT to private school fees, presumably at the standard rate, but this is not specified. The Conservatives promise not to increase the level of VAT but don’t mention the scope.

Inheritance tax

The Greens want to reform inheritance tax so the rate is determined by the wealth of the recipient not as at present, the value of the deceased’s estate. UKIP want to raise the IHT nil rate band to £500,000, and eventually eliminate this tax altogether.

The Lib Dems and Labour say they will reverse the increase in the IHT threshold – this presumably refers to the new residential nil rate band, but that is not clear in either manifesto.

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Replies (19)

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By SE_Confused
05th Jun 2017 10:03

totally pointless. check what the tories said before last election and then look at the budget after!

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By Tom 7000
05th Jun 2017 10:08

current odds labour 7/1 Tory 1/10

Corbyn didnt say anything about a 21% small companies rate on the tellybox... you sure about that?

If you are worried about your corporation tax hike, put £10k on labour to win as a hedge...

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Replying to Tom 7000:
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By Prem Sikka
05th Jun 2017 10:22

Here is what Labour said about corporation tax rate, including the rate for small companies "Raising the headline rate to 21% from 2018-19, 24% from
2019-20 and £26% from 2020-21. Small Profits (below
£300,000) rate is 20% from 2018-19 and 21% from 2020-21" (see page 6 http://www.labour.org.uk/page/-/Images/manifesto-2017/FUNDING-BRITAINS-F... )

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By Prem Sikka
05th Jun 2017 10:32

The above analysis could be improved. Labour produced a fully costed manifesto and no one else has. It also published a very detailed tax transparency programme (10 pages) to tackle the tax avoidance industry and this includes policies such as public filing of the tax returns of large companies and wealthy individuals earning more than £1 million a year. From what I can see Labour is the only party that is also seeking to broaden the tax base by introducing a version of FTT and a levy of offshore ownership of UK residential property, amongst other things.

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Replying to premsikka:
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By AndyC555
05th Jun 2017 10:51

My guess would be that Rebecca didn't discuss costings in manifestos as the article was a comparison of key tax policies and not a political plug for one or other of the parties.

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Replying to AndyC555:
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By Prem Sikka
05th Jun 2017 11:10

That's a fair comment. But Labour has also offered policies (e.g. filing of corporate tax returns) which are probably of interest to accountants.

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Replying to premsikka:
By Rebecca Cave
05th Jun 2017 11:59

See my recent article on teh Labout tax policies
https://www.accountingweb.co.uk/tax/hmrc-policy/a-labour-win-tax-possibi...

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Replying to Rebecca Cave:
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By Prem Sikka
05th Jun 2017 12:24

Thank you.

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Replying to premsikka:
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By Ian McTernan CTA
05th Jun 2017 11:15

Labour's 'fully costed' was nothing of the sort. It was a wish list and a pile of bribes, which the IFS said wouldn't raise as much as Labour thought and would drag the economy.

Not to mention no costings for the biggest items of all, being the nationalisation of several industries, estimated at £100bn, not any costings for how much borrowing an extra £250bn will cost, nor any mention of how they are going to magic up 1m 'good' jobs or how that will be paid for.

They don't seek to broaden the tax base, they seek good old fashioned politics of envy attack the 'rich'. A bit like adding VAT to private school fees (paid by many who are no where near 'rich').

FTT has even been kicked into the long grass by the EU- for the simple reason that it would take around two weeks to move derivatives trading to somewhere that doesn't tax it and then not only are you losing that tax, but also all the other taxes on those people's income, rates, CT, etc.

It's just more tax and spend spend spend and will end up with the same mess as last time.

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Replying to Ian McTernan CTA:
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By Prem Sikka
05th Jun 2017 12:39

You may not like the costings and that's fair enough but at least Labour has done something that no other party has. Of course, hard to pick holes in other parties' analysis because they have not provided any. I am not inclined to put the IFS in any pedestal either (for example, its analysis has given little weight to macroeconomic impact of putting more money in people's pockets or what Keyness called the 'multiplier' effect). Labour's version of FTT is entirely different from the EU's. Have you read it?
Wealth has percolated upwards and inequalities have widened, and that is not the sign of a healthy society or a sustainable economy. Personal debt is at around £1.5 trillion and average person has savings to cover them for about one month. Ordinary person's ability to spend and build a sustainable economy is exhausted. Workers' share of GDP is now at 49.5% (probably even lower as this figure includes footballers, directors, bankers and others), the lowest ever recorded. Too many hard working people on poor wages.
I am not rich but am one of those who would be hit by Labour's higher rate of income tax and am happy to pay it in the hope of building a sustainable, just and peaceful society. Over to you.

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By Ian_mcdonald
05th Jun 2017 12:09

Thoughts on Labours plans ...

Increase CT - big companies take their business, and employment elsewhere (if they don't, their shareholders take their money elsewhere)

Increase Income Tax - Nick Clegg, in a brief moment of BBC Question Time transparency, confessed that Government has a very poor success rate for collecting more tax from the wealthy .

Nationalisation - Civil servants are not proficient at managing businesses -> unions are able to exert more influence -> lower productivity -> higher prices or more subsidy.

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Replying to Ian_mcdonald:
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By Prem Sikka
05th Jun 2017 12:35

Tax is just one variable in various corporate decisions. Scandinavian countries have higher personal and corporate tax rates and wages. Why? Because governments have invested in social infrastructure. No sign that corporations have abandoned those countries or Canada. would companies really abandon the world's 5th largest economy because they are asked to contribute more?
Tax from wealthy- In evidence to the Public Accounts committee, HMRC said that it only had capacity to investigate about 35 HNWIs in any year. It had only 85 transfer pricing specialist about a quarter of those at the Big four firms. HMRC needs resources and direction. Only 11 prosecutions for offshore tax evasion since 2010 (despite evidence handed on a plate - Swiss leaks, LuxLeaks, Football Leaks, HSBC Leaks, Panama Papers). HMRC goes after little people and despite Public Accounts Committee hearings no test cases against any giant corporation.
Railway subsidy is at around £6bn a year. Not much testimony to privatisation. Yes, civil servants are not very good at handling industry (look at the mess over PFI) but there are other models for managing nationalised industries in most of the other EU countries.

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By johnjenkins
05th Jun 2017 12:19

I hate to say this, but I don't think policies now mean anything. It'll be who the public think is the person that is best placed to deal with the current spate of terrorism.

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By andyscotland
05th Jun 2017 12:21

It may also be relevant to note that Labour will provide funding to help smaller businesses introduce the higher Living Wage, paid for by ringfencing the additional tax and national insurance that wage rise will generate.

The precise mechanism for this hasn't been confirmed (I understand there'll be a consultation), but is likely to be an enhanced Employment Allowance or similar.

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By johnjenkins
06th Jun 2017 08:55

It really is a pity that there wasn't a box for "continue coalition" on the ballot paper in the last general election. I think a further 5 years of the coalition would have seen a bit more stability. Hind sight is a truly wonderful thing.

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By nicmgfi
06th Jun 2017 15:10

This seems to have turned into a party political broadcast on behalf of the Labour Party so to redress the balance:
Minimum wage £10/hr to everyone , doesn't matter if you've taken time to study and learn to get better qualifications, it doesn't matter that you've been in the job years, everyone gets the same - nope! Those people who have worked hard to move up the ladder to earn £10/hour will also want a 25% pay increase and why not. Businesses will seek to keep payroll costs down, their only option is to make redundancies, resources will be discouraged from training as there will be no pay increase on offer as no funds available.
Garden Tax: This will lead to a rise in costs of essentials such as bread, milk, butter, cheese, vegetables, fruit, etc. etc. which will have a knock on effect on inflation (remember the good old days of 1970s and 1980s?). The money in your pocket won't go as far so those pensioners will find that their 'increase' is actually a decrease in available income. The amount per hour required to meet minimum living wage levels will also increase, add this to Businesses increase their prices to recoup all the tax increases (and minimum wage) and you have the perfect storm.

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Replying to nicmgfi:
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By Prem Sikka
06th Jun 2017 16:28

£10 an hour is not a lot these days and will barely enable some to survive and certainly will not enable them to buy a house or a car. Numerous statistics show an increase in the working poor. I don't think it is fair that taxpayers should be subsidising employers paying poverty wages. Of course, there would be different views about it but there is little evidence to show, so far, that the minimum wage has had a negative effect on the economy. Even if everyone got academic credentials there will still be jobs with low pay as some sectors of labour market are poorly organised or are unable to effectively differentiate themselves from others. So the question is how low/high should it be? That, I think, is best decided by society as whole and at least people have a chance to indicate their views through the ballot-box.

There is no such thing as a "Garden Tax". Over 150 years ago Henry George proposed Land Value Tax (LVT), something which is now practiced in some US states and countries such as Denmark (since 1924), Singapore, Taiwan and Hong Kong. LVT was also supported by Milton Friedman who said that it was the "least bad tax" and even Winston Churchill called for it. The key idea is to base a levy on the basis of land value and that has absolutely nothing to do with gardens or anything else. Labour manifesto only says this "We will initiate a review into reforming council tax and business rates and consider new options such as a land value tax, to ensure local government has sustainable funding for the long term". It does not say that it is going to impose it. As there are lots of criticisms with Council tax and business rates I would have thought that a review is long overdue.

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Replying to premsikka:
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By nicmgfi
06th Jun 2017 17:26

I'm going to make a couple of assumptions here, the first is that you live in or around the London area because to those who live in the big area that isn't London, £10/hour is something we have strived and trained to get and is a lot of money. Traditional Labour voters are outside of London and believe it or not, you can still buy a house for under £50,000, these are the voters who will be most adversely affected by Corbyn's policies, which is why a lot of them could be voting Tory for the first time in their lives.
And Garden Tax is as real as Dementia Tax and Bedroom Tax.

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Replying to premsikka:
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By kjevans
06th Jun 2017 17:26

Why does everyone need a personally-owned house or car? Labour will make sure that there is plenty of social housing (as there used to be when I was growing up) and lots of local jobs and affordable public transport. Perhaps a lot of the problem is that unnecessary things like cars and flat screen TVs are now seen as necessary. £10 a hour is a very decent wage. Of course, it won't be so good when prices rise to compensate.

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