Conservatives promise to freeze main tax rates
In a relatively short manifesto, the Conservatives promise to freeze the rates of NIC, VAT and income tax, as well as reform the insolvency rules and the audit regime.
The headline from the Conservative Party manifesto is “Get Brexit Done”, a phrase which, along with the word “control”, recurs liberally.
Economic rules and spending commitments
The Conservative Party makes a number of promises regarding fiscal rules. In particular, if elected the government will not borrow to fund day-to-day spending, will invest thoughtfully and responsibly in infrastructure right across the country in order to increase productivity and wages.
As a result, public sector net investment will not average more than 3% of GDP and if debt interest reaches 6% of revenue, it will reassess plans to keep debt under control.
The party also undertakes to prioritise the environment in the next Budget, investing in the infrastructure, science and research. There is an intention to invest heavily in the NHS, social care and schools.
Tax proposals include the following, some of which have already been announced or set in train.
- The national living wage for those over 21 will increase to two-thirds of average earnings.
- The rates of income tax, NIC and VAT will not rise.
- The threshold for employees’ NIC will increase to £9,500 (2020/21), with an ultimate ambition to raise it to £12,500.
- There is a commitment to reduce business rates following a fundamental review. The first step will be to give a one-year discount for retail businesses and extend this discount to grassroots music venues, small seminars and pubs. There are no details of amounts or caps on the sizes of properties affected.
- The employment allowance for small businesses is to be increased to £4,000 per year.
- Non-UK resident buyers will pay a stamp duty land tax surcharge, which will be ring-fenced to tackle rough-sleeping.
- Increase the health immigration surcharge to £625 and apply this to EEA nationals.
- R&D tax credits will increase from 12% to 13% and the definition will be reviewed to bring in cloud computing and data into the net.
- Increase the structures and buildings allowance from 2% to 3%.
- Entrepreneur’s Relief will be reviewed and reformed, as it is not achieving its objectives.
- A new fund will provide more childcare – details are vague.
- Improvements are promised for the self-employed, which include making the tax system easier to navigate. Again, details are vague.
- There is a commitment to “improve the working of the Apprenticeship Levy”.
- New, undefined measures are to be introduced to lower energy bills.
- There will be a review of the net pay pension contribution system which means those on lower earnings miss out on tax relief.
- The pension triple lock: winter fuel payments, bus pass and “other pension benefits” are to be maintained.
- The party believes that the free TV licence for over 75s should be funded by the BBC.
- VAT on female sanitary products is to be abolished. This is the only commitment with regard to VAT abolition after departure from the EU.
- A plastic packaging tax will commence in 2022/23.
- Alcohol duty is to be reviewed.
- Continue the roll-out of universal credit and end the benefits freeze.
- One-year employer’s NIC holiday will be available to those that employ individuals who have left the Armed Forces within the last year.
There are a number of promises regarding minor changes relating to such matters as free school meals, leave for unpaid carers and repeated re-assessment of disabled people.
Building a fairer taxation system
In addition to specific tax measures, there is a commitment to “tackle tax evasion and reduce opportunities for aggressive tax avoidance”. The intention is to close the tax gap, which the document quantifies as £35bn. As a result, there will be “a new anti-tax avoidance and evasion law”, which will:
- Double the maximum prison term to 14 years for individuals charged with the most egregious examples of tax fraud.
- Create a single, beefed up anti-tax evasion unit at HMRC, covering all duties and taxes.
- Consolidate existing anti-evasion and avoidance measures and powers.
- Introduce a new package of anti-evasion measures including crackdowns on the construction sector, illicit tobacco packaging and profit-shifting by multinational companies.
- Implement the Digital Services Tax.
- Limit arbitrary tax advantages for the wealthiest in society.
The Conservative Party has committed to reforming the insolvency rules and the audit regime as well as improving incentives to attack excessive executive pay and rewards for failure.
The legislation that was intended to protect pension pots from being “plundered by reckless bosses” is to be reintroduced, along with a new more sustainable style of pension scheme.
The new, Australian-style, points-based system will prioritise people who have:
- A good grasp of English.
- Been law-abiding citizens in their own countries.
- Good educational qualifications.
Most immigrants will also need a clear job offer. EU citizens who settled before Brexit will be allowed to stay, subject to them being accepted through the settled status scheme.
In addition, immigrants will not be able to access unemployment, housing or child benefit until they have been here for five years.
There is a desire to introduce measures that protect low-paid workers and those in the gig economy.
Measures will include a crackdown on employers who abuse employment law, for example by refusing sick pay. Workers will also have the right to request a more predictable contract and other reasonable protections.
Flexible working will be encouraged. Parents will be allowed to take extended leave for neonatal care, while fathers will have greater opportunities to take paternity leave.
Although Sajid Javid repeats his claim, on page 2 of the costings document, that the Labour Party proposals would cost £1.2tn, at first sight, the figures published by the Conservatives are not necessarily significantly lower than those in the Labour Party manifesto.
While much of the Conservative manifesto concentrates on the benefits of leaving Europe, accountants will note the proposals to review the ways in which insolvency practitioners and auditors work.
In addition, there are bold commitments to maintain the current rates of income tax, national insurance contributions and VAT, which will limit government flexibility.
If additional funds are needed, then unless the Exchequer is to borrow vast sums, increases will have to come in areas such as corporation tax (which is already effectively increasing by 2% compared with announced rates for next year) and stamp duty.
While in theory there could be changes to capital gains tax and inheritance tax, these would go against the party’s principles so seem less likely.
Finally, there is a commitment to attack “aggressive” tax avoidance as well as tax evasion.