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Election 2010 tax watch: Labour promises AIA support for businesses

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20th Apr 2010
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From the outset, tax issues have grabbed the headlines in the 2010 general election campaign. This article documents the latest tax controversies along with summaries of the main parties' tax policy commitments.

Tax: where they stand

Labour
-Halve £168bn deficit during next Parliament through economic growth, fair taxes and spending cuts
-Freeze income tax for the next Parliament
-VAT will not be extended to food, children’s clothes, books, newspapers and public transport fares
-Restrict pension relief for £130,000+ earners
-Double Entrepreneur's Relief
-Double AIA to £100,000
-Extend BPSS

Conservative
-Stop 2011 NIC increases
-Tackle deficit immediately with spending cuts
-New Office of Tax Simplification to review IR35
-Cut Corporation Tax rate to 25p and 20p rate for SMEs
-Reduce complex capital allowances to pay for cuts
-Freeze Council Tax for two years and scrap revaluation
-Raise IHT threshold to £1m
-Raise Stamp Duty threshold to £250,000 for first-time buyers
-Introduce £750 transferrable allowance for married couples.

Liberal Democrats
-Raise personal allowance to £10,000
-Rebalance tax system in favour of lower paid
-Restrict tax relief on pension contributions to the basic rate.
-Align CGT rates to income tax and reduce annual exemption to £2,000
-New general anti-avoidance provision for Corporation Tax, paid for by companies requiring clearance
-A 1% tax for properties over £2m
-Change taxation of benefits in kind to reduce NIC "leakage"
-Replace Air Passenger Duty with a per plane tax.

Green Party
-Use tax and regulation to discourage over-use of finite resources
-Raise main CT rate to 30% but lower SME rate to 20%
-Replace VAT with Taxes on pollution & use of resources
-Merge National Insurance into income tax
-50% income tax rate for those on more than £100,000 a year
-Abolish relief on pension contributions
-End VAT zero-rating on new dwellings
-Crack down on tax havens

UK Independence Party
-Raise tax threshold to £11,500
-Introduce 31% flat rate for income tax
-Reinstate dividend tax credit at 20%
-Phase out employers’ NI contributions over five years
-Reduce annual limit for tax-relievable pension contributions to £10,000.

Labour promises AIA support for businesses
20 Apr - Gordon Brown confirmed that the increased £100,000 Annual Investment Allowance (AIA) would remain for the next parliament. Launching Labour's business manifesto in a speech at BMW's Mini plan in Oxford, he said: "We believe in supporting firms that invest in the economy for the future." According a report by the Financial Times, Labour will also keep the AIA in line with inflation and provide funding support for high tech companies and infrastructure improvements. The Conservative party has already pledged to abolish many of what it calls the 'complex' reliefs and allowances. Shadow chancellor George Osborne said the money saved would be used to fund a 3p cut in the headline rate of corporation tax to 25p in order to make Britain more attractive to foreign investors.

* * *

SMEs in protest over NIC increase
16 Apr - Over 400 small business owners have signed a petition calling for Labour’s planned national insurance tax increase to be scrapped. Beauty salon owners, plumbers, builders, florists and bakers joined more than 100 bosses of medium and large businesses who supported the Conservative Party’s pledge to reverse the decision should they win the general election. “We believe that the government’s proposal to increase national insurance, placing an additional tax on jobs, comes at exactly the wrong time in the economic cycle,” said the SME campaigners in a letter to the press. “In the last two years, businesses have cut their costs without undermining the service they provide to their customers. It is time for the government to do the same.”

* * *

Green Party promises “radical tax reform”
15  April – Launching her party’s election manifesto (275kb PDF) in Brighton, Green Party leader Caroline Lucas promised a return to progressive taxation: “Now is the time for radical tax reform, with those on higher incomes paying more, and those on lower incomes better off.” The manifesto characterised the current taxation level of 36% of GDB as “unacceptably low” and aimed for an increase to 45% by 2013. Among the measures the party would introduce are a £170 a week citizens pension and a reduction in Corpoation Tax to help small businesses thrive. “This is not fantasy politics - our manifesto is fully costed,” Lucas said. “We would pay for it by scrapping Trident which would bring in around £80bn. We would cut the £30bn to be spent on road building and use the money to invest in public transport. We would raise income tax for those earning over £100,000 a year to 50%. We support a Robin Hood tax. And we would ensure a permanent tax on bankers bonuses.”

* * *

Lib Dems back general anti-avoidance scheme for CT
14 Apr - The Liberal Democrats have thrown their weight behind a new general anti-avoidance provision for corporation tax. The mechanism will be designed to stop companies structuring their business specifically to reduce their corporation tax bill. Answering arguments against the prohibitive costs of administering such a measure, the Lib Dems proposed that companies requiring clearance of their tax treatments will have to pay a specialist HMRC team at commercial rates to undertake the work, as a form of professional service. “This will be a revolutionary change to the HMRC services, drawing it closer to commercial practices,” says a Lib Dem tax policy briefing document (PDF).

* * *

Labour manifesto promises more of the same
12 Apr
- The Labour manifesto published today contained few surprises. Income tax rates would be frozen for the next Parliament, but no mention was made of NI contribution rates. Similarly, Labour will not extend VAT to food, books, children's clothes or transport - but made no mention of the possibility of changing the standard rate. Most of the document's other economic and tax policies have been well rehearsed in the Budget and PBR packs. However a couple of throwaway statements in the manifesto echo some of the "ugly surprises" in previous budgets: an undertaking to extend "labour licencsing" if it proves successful in construction to other industries; and the suggestion that HMRC will play a more active role in enforcing the national minimum wage.

* * *

Brown refuses to rule out VAT increase

12 Apr - The prime minister has refused to commit to not increasing VAT under a future Labour government as he launched his party's election manifesto. On the subject of VAT the 76 page document says: "We renew our pledge not to extend VAT to food, children's clothes, books, newspapers and public transport fares." Questioned by journalists on whether he would commit to not increasing VAT, Brown said: "Our record is not to raise VAT when there are difficulties. Our plans are costed on the basis of not raising VAT." The prime minister said the commitment was consistent with pledges made in 1997, 2001 and 2005.

* * *

Tory's plan transferable personal allowance
10 Apr - The Conservatives have confirmed the party's commitment to a transferable personal allowance for married couples and civil partners, which will benefit only basic rate taxpayers. Up to £750 of unused personal allowances will be available to transfer to the taxpayer's spouse or civil partner, worth £150 in tax. The transfer will not be available to higher rate taxpayers, and the benefit of the reduction will be tapered so that those with higher income receive less benefit.

* * *

Dragon costs NIC increase at £15 per worker
9 Apr - Dragons' Den entrepreneur James Caan waded into the NIC debate to dent the credibility of Conservative and business claims that next year's planned rate increase would damage employment prospects. Questioned by Jeremy Paxman on Newsnight last night, Caan said he did not think the rate increase would be so devastating. Hiring a person following a 1% increase would cost an employer about £15 a month; if the position was an important one, it would probably not put him off. The average salaries of retail workers whose employers signed the protest letter were under £20,000, so vast amounts of them wouldn’t be caught, Caan argued. “The Devil is in detail. It’s only when start to analyse it that you start to see what the impact will be. I don’t think it will be that material,” he said.

* * *

Lib Dems attack £13.4bn hole in Tory tax plans
8 April
- Liberal Democrat leader Nick Clegg attacked what he called a “£13.4bn VAT bombshell” at the heart of Tory tax policies. The Lib Dems put the annual cost of the Conservatives’ proposed tax cuts at more than £13.5bn (2011-12 prices), yet only £100m has been identified to fund them. The £13.4bn shortfall would be equivalent to a 3% rise in the standard rate of VAT and an extra £389 in tax on the average household, the party claimed. “We will not have to raise VAT to deliver our promises. The Conservatives will,” said Clegg.

* * *

NIC increases take centre stage
8 April
– The Conservatives drew blood in the few days of the general election campaign by targeting Labour’s proposed increases in National Insurance Contributions. Stopping what they call a “tax rise on jobs” will benefit 7 out of 10 working people and be funded by finding £6bn in government efficiencies in 2010-11, the Tories said. For 2011/12, the main rates of Class 1 and Class 4 NICs will rise by 1% to 12% and 9%. The employer rate for both Class 1A and 1B contributions will rise to 13.8%. According to Treasury estimates, the rise will raise roughly £7bn. Chancellor Alistair Darling called the impact on business “manageable”, but more than 60 business leaders have signed a letter warning of its potential impact on job losses. As the Guardian noted, one of the most damaging effects for Labour is the impression it gives of losing support from the business community.

* * *
Cider duty increase halted
7 April
– As part of the horse-trading around the “wash up” that has to take place before Parliament is dissolved on 12 April, the Conservatives forced the government to drop its above inflation increase in duty on cider from the Finance Bill. The increase implemented on 26 March will now expire on 30 June, after which cider would be subject to the standard 2% increase announced in the Budget for beers and spirits. With all the parties competing for marginal seats in the West Country, shadow treasury secretary Philip Hammond hailed the U-turn as a "major victory for businesses and consumers across Britain". Also dropped from the bill were the proposed 50p levy on landlines and clauses repealing the holiday lettings rules.

TAX POLICIES - WHERE THE PARTIES STAND

Labour

  • Reducing the deficit will come from a combination of public spending cuts, economic growth and tax increases “for those who can afford them” – with 60% of tax rises being paid for by the top 5% of earners.
  • Finance Bill 2010 sets out a new 50p top rate for those who earn over £150,000 (the top 1% of earners). For people with incomes over £100,000 a year (the top 2% of earners), will see a gradual removal of their personal tax-free allowances.
  • Tax relief on pensions will be restricted from next year for those with incomes above £130,000 a year. Tax relief on pension contributions will be restricted to the basic rate for those with income of over £180,000; those in the band £150,000 to £180,000 will see their tax relief reduced proportionately until they reach the £180,000 limit.
  • In its manifesto, Labour undertook not raise the basic, higher and new top rates of tax in the next Parliament  and pledged not to extend VAT to food, children’s clothes, books, newspapers and public transport fares. (NB: There was no mention of NIC rates, nor any mention of raising the standard rate of VAT).
  • A commitment to extend "the licensing approach to labour providers in the construction industry" (Ed - does this mean the CIS?) to enforce employment rights.
  • Maintain the national minimum wage in line with inflation and strengthen HMRC's role in enforcing it.
  • Will use the tax system to claw back some of the costs of maintaining prisons from higher-earning offenders.
  • Will double the value of capital gains that can be made under Entrepreneur’s Relief, meaning gains under £2 million are subject to Capital Gains Tax at the lower rate of 10%.
  • Inheritance Tax nil rate band will remain frozen for the next four years at £325,000, allowing “fiscal creep” to raise additional funds, for example if house prices start to recover.
  • Corporation Tax rate to continue at 28% for 2011/12. The small profits rate is still due to increase from 21% to 22% from 1 April 2011
  • Introduce the "patent-box" – a new, lower rate of Corporation Tax to encourage UK innovation.
  • Business Payment Support Scheme (aka “Time To Pay”) to be extended through the next parliament. In his Budget speech, Chancellor Alistair Darling claimed the scheme helped more than 200,000 businesses to pay more than £5bn in business taxes on a timetable they can afford.
  • Will double Annual Investment Allowance (as announced in 2010 Budget).
  • Green taxes: zero-emmission goods vehicles will now attract a 100% first year capital allowance

Conservative

  • Will deal with the deficit more quickly than Labour and build a more stable, balanced economy, reform public services to deliver better value for money and create new jobs to “make Britain open for business again”.
  • Will present an emergency Budget within 50 days of taking office to address the current budget deficit over the course of the next Parliament (Labour is promising to halve the deficit in that time). The first measures will start to take effect this year.
  • Will create an Independent Office for Budget Responsibility  to restore trust in Treasury forecasts. The OBR will provide an independent audit of all Government liabilities, and hold the Government to account for its fiscal promises.
  • Will stop the planned increases in National Insurance Contributions. Stopping Labour's “tax rise on jobs” will benefit 7 out of 10 working people and be funded by spending £6bn less in 2010-11 than Labour projections. The Conservatives will still allow the rates of NI rates to increase, but would also increase the starting threshold for applying the tax to £6,968 and the higher threshold to £38,908. The effect would be that anyone earning less than £45,000 would experience no increase in their NI payments.
  • Emergency Budget will set out a five year road map for corporate tax reform, providing greater certainty and stability to businesses. All technical changes will be published in a Pre-Budget Report before each Budget for consultation and proper Parliamentary scrutiny,
  • Undertake a full and fundamental review of small business taxation, including IR35. The aim will be to provide a simpler, clearer and lasting tax regime, so businesses can plan with confidence. The Tories claim IR35 has cost business £73m over 10 years, but has barely raised any revenue. Prisk criticised Gordon Brown for making it harder to be self-employed at a time when Britain should be open for business.
  • In support of longstanding pledges to simplify the tax system, the Conservatives will set up an Independent Office of Tax Simplification to review current arrangements with the aim of providing a clearer, lasting and fairer tax regime.
  • Cut Corporation Tax to 25p and lower the rate for small firms to 20p The rate cut will be funded by reducing complex reliefs and allowances, including the Annual Investment Allowance that Labour has now raised to £100,000.
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    Simplify the Controlled Foreign Companies rules and consult on moving towards a territorial corporate tax system that only taxes profits generated in the UK.

  • Improve R&D tax credits to focus on hi-tech companies, small businesses and new start-ups.
  • Introduce transferable personal allowance for married couples and civil partners. Those on basic rate of income tax will be able to transfer up to £750 of unused personal allowances to their spouse or civil partner, worth £150 in tax.
  • Do not regard the new 50p tax rate as a permanent feature of the tax system, but would not abolish it while asking public sector workers to accept a pay freeze.
  • Stop tax credits to families with incomes over £50,000.
  • Raise the Inheritance Tax threshold to £1m.
  • Make small business rate relief automatic.
  • Take 9 out of 10 first-time buyers out of Stamp Duty by raising their threshold to £250,000 (an idea lifted by Labour in the 2010 Budget).
  • Reverse the effects on pension savers of the 1997 abolition of the dividend tax credit for pension funds.

Liberal Democrats

  • Radically rebalance the tax system by cutting taxes for people on low and middle incomes, which will be paid for by cutting reliefs, closing tax loopholes that benefit the wealthiest.
  • Increase the personal allowance threshold for income tax to £10,000. This measure would cut the average working person’s income tax bill by £700 and pensioner’s tax bills by £100. As a result, nearly 4m people on low incomes would no longer have to pay any income tax.
  • Will consult with businesses to identify regulations for repeal, reduction or simplification.
  • Introduce a 1% levy on properties over £2m.
  • Restrict tax relief on pension contributions to the basic rate.
  • Align Capital Gains Tax rates to income tax and reduce annual exemption to £2,000.
  • Restore the link between pensions and earnings to improve pensioners’ living standards in line with the rest of the country. The state pension will be increased in line with earnings, prices or by 2.5%, whichever is the higher.
  • Replace Air Passenger Duty with a per plane tax.
  • Introduce a levy on domestic flights.

According to Lib Dem candidate for Livington Charles Dundas, the party’s tax policies are based on the following principles:

  • Fairness – tax policies should be equitable and ensure that the payment of taxes is linked proportionately to people’s ability to pay.
  • Simplicity – tax policies should be clear to taxpayers and new policy should aim to eliminate complexity in existing legislation.
  • Certainty – tax policies should not be retrospective and should provide the taxpayer with certainty over the correct treatment.
  • Efficiency – tax policies should provide revenue to the government on an efficient basis and minimise tax leakage.
  • Transparency – the reasons behind the introduction of new tax policy and the intention of spending of revenue raised should be clearly stated to the taxpayer.
  • Competitiveness – UK tax policies should be internationally competitive.

Green Party

  • Ensure that taxation and regulation discourage pollution and the wasteful use or over-use of finite resources, and encourage ecological sustainability. 
  • Economy and public spending deficit: “We will raise taxes fairly and explain them honestly. The Green Party will be open about what we would cut, what we would defend, and about the fact that we need to raise taxation from 36% of GDP in 2009-10 to around 45% in 2013. This would halve the gap between government expenditure and revenues by 2013-14 (as the Labour government proposes) and progressively close the gap thereafter,” says leader Caroline Lucas.
  • Reduce bureaucracy by scrapping VAT. Taxes on pollution or the use of resources would encourage more sustainable ways of producing goods. If these taxes replaced VAT, prices would not rise overall.
  • Simplify PAYE by abolishing National Insurance as a separate entity and merging it into general income tax.
  • End to zero-rating of VAT on new dwellings, to put them on a level with conversions and renovations of existing dwellings. This would raise £5bn in 2010 and £7.5bn by 2013.
  • End tax relief on pension contributions that mainly benefit the more wealthy. A non-means-tested state pension, set at £170 a week

UK Independence Party

  • Take tax off the minimum wage by raising the tax threshold to £11,500
  • Introduce a 31% flat rate for income tax
  • Roll all existing state pensions and benefits into a non means-tested minimum £130pw ‘Citizen’s Pension’
  • Reinstate dividend tax credit at 20%
  • Reduce the annual limit for tax-relievable pension contributions to £10,000, from £255,000
  • Phase out employers’ NI contributions over five years
  •  Save up to £120bn a year by leaving the EU. No British jobs or trade will be lost
  • Axe Britain’s gigantic quango mountain and public sector non-jobs to reduce UK national debt
  • Release businesses from 120,000 EU laws
  • Replace VAT with a ‘Local Sales Tax’ to help councils and local businesses
     

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By abelljms
13th Apr 2010 19:08

PSBR question

 All the parties are shying away from how to really fix the PSBR black hole.

 

I want to know WHY PSBR is soooo massive when we have bailed out the useless bankers in 08/09 – what went wrong in 09/10, and in 10/11? What is pushing this massive PSBR need????? Something is pointing its perky bits up at the ceiling…..

once that is answered we would be better informed to fix the PSBR assuming we understand the answer I vote for anyone who will immediately freeze in cash terms the level of all government expenditure while an emergency review of everything is instituted, and we start spending only on what is most important. I would impose a limit on all civil servants/quasi-civil servants that their max salary in ANY form including benefits is 80% of the PM. I think it is still legal to reduce salaries so just do it, and we all know any of us can do their jobs so do we care if they walk? I'll run the tube and buses for £80k a years no problemo. sadly I would go for 20% VAT, and extending the scope to virtually everything because it’s cheap to collect. there have to be some measures to help the poorest, but it will be a really tough time for next few years.

 

Oh, and I‘m praying hard for a strong economy to fix some of the problems with growth !

 

 

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By mikewhit
15th Apr 2010 09:15

Bail out/buy out

I didn't think we'd so much bailed out the bankers as bought them out - in which case the banks ownership should be on the books as an asset offsetting the sums spent ... or have I got that wrong.

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