A Close Look at Manifestos - General Election Tax Policies

As the UK general election approaches, tax policies have become a focal point of debate among the major political parties. The manifestos of Labour, the Conservatives, and other parties present divergent strategies aimed at shaping the nation’s fiscal future. Labour’s manifesto emphasises reforms targeting wealth and corporate practices, while the Conservatives propose tax cuts and incentives aimed at easing the burden on individuals and businesses. Smaller parties, such as the Liberal Democrats, the Green Party, and Reform UK, introduce their own unique tax measures, ranging from substantial wealth taxes to innovative business incentives. This analysis delves into the key tax policies proposed by each party, highlighting their potential impact on the UK’s economy and taxpayer landscape.

Labour Manifesto

The Labour manifesto did not present any unexpected tax policies, instead reiterating key policies that have been previously discussed, though with limited detail. Notably, the manifesto confirms Labour’s commitment not to increase National Insurance, income tax rates, or VAT. The specific wording suggests they will not raise the basic, higher, or additional rates of income tax, possibly implying a continuation of the Conservative policy of freezing personal tax thresholds.

Key policies include:

Reform of the non-dom regime.
Ending the use of offshore trusts to avoid inheritance tax.
Reforming the taxation of private equity.
Ending tax breaks for private schools.

Extending the sunset clause in the Energy Profits Levy until the end of the next parliamentary period, increasing the rate by three percentage points, and removing investment allowances.

Labour plans to cap the corporation tax rate at 25 percent for the next parliamentary period but may act if international tax changes threaten UK competitiveness. They have vowed to maintain permanent full expensing and the annual investment allowance, and they have pledged to publish a business tax roadmap within six months of taking office.

On business rates, Labour aims for revenue-neutral reform to level the playing field between high street businesses and online giants. The Apprenticeship Levy will also be replaced with a Growth and Skills Levy.

Labour has committed to two main fiscal rules: balancing the current budget and reducing debt as a share of the economy by the fifth year of the forecast. They also pledge to subject significant fiscal events to an independent Office for Budget Responsibility (OBR) forecast and limit major fiscal events to once a year.

Labour aims to tackle the tax gap by changing the law to address avoidance, increasing registration and reporting requirements, and enhancing HMRC’s capabilities. They emphasise addressing tax avoidance by large businesses, although HMRC reports indicate that these businesses are not the major contributors to the tax gap, with the major contributor being that of small businesses which are estimated to make up 60% of the gap.

Notably absent from the manifesto are specific plans for capital gains tax, inheritance tax, tax on pensioners, fuel duty, and council tax. This silence may indicate potential areas for future tax increases.

Conservative Manifesto

The Conservative manifesto introduced several unexpected tax measures. It commits to not increasing the main taxes—income tax, National Insurance, and VAT—and promises to reduce employee National Insurance by 2 pence. They also plan to abolish the main rate of self-employed National Insurance (known as Class 4) by the end of the next parliamentary period, maintaining the ambition to abolish employee National Insurance.

Key measures include:

Moving Child Benefit to a household system, with tapering starting at a combined household income of £120,000.
Introducing an age-related personal allowance linked to the state pension.
Maintaining Private Residence Relief for capital gains on primary homes and introducing temporary capital gains tax relief for landlords selling to tenants.
Implementing a Family Home Tax Guarantee to avoid increasing council tax bands or revaluations.
Abolishing Stamp Duty Land Tax for homes up to £425,000 in England and Northern Ireland.
Keeping the corporation tax rate unchanged and extending full-expensing to leasing when fiscally possible.
Maintaining R&D tax reliefs and creative sector incentives.

For energy companies, the windfall tax will stay in place until 2028/29 unless prices normalise earlier. The manifesto also mentions extending ‘full expensing’ to brownfield housing delivery.

To support small businesses, the Conservatives will review the VAT threshold and offer a £4.3 billion business rates support package over five years. They plan to increase the multiplier on distribution warehouses to support high street businesses and retain various investment incentives.

The Conservatives aim to tackle tax avoidance and evasion, aiming to raise an additional £6 billion annually by the end of the next parliamentary period.

Comparison of Labour and Conservative Manifestos

Both manifestos share some common ground:

Commitment to reducing debt by the last year of the forecast period.

No increases to the main taxes and a cap on the corporation tax rate.

Silence on inheritance tax reform.

Similar targets for raising funds by tackling the tax gap.

The Labour manifesto is generally tax-raising, while the Conservative manifesto is tax-cutting. However, both involve relatively small changes in the context of an economy with annual tax revenues around £1 trillion. Both parties plan to address tax avoidance and evasion but lack detailed strategies for achieving significant revenue from these efforts.

The Conservative manifesto offers more voter-targeted benefits, such as tax breaks for house buyers and pensioners, while leaving less flexibility for tax changes in response to economic shocks.

Other Parties’ Tax Policies

Liberal Democrats

The Liberal Democrats propose:

Restoring Bank Surcharge and Bank Levy revenue to 2016 levels.
Introducing a substantial tax on oil and gas super-profits.
Increasing the Digital Services Tax to 6 percent.
Introducing a sewage tax on water company profits.
A 4 percent tax on share buy-backs.
Significant capital gains tax reform.

They also aim to raise substantial additional revenue by addressing the tax gap, far exceeding Labour and Conservative estimates.

Green Party

The Green Party’s tax policies include:

A wealth tax of 1 percent on individuals with assets over £10 million and 2 percent on those with assets above £1 billion.
Equalising capital gains tax with income tax.
Reforming inheritance tax and pension tax relief.
Business tax increases totalling approximately £43 billion.
Implementing a carbon tax starting at £120 per tonne.

Reform UK

Reform UK’s manifesto includes:

Increasing the income tax threshold to £20,000.
Abolishing inheritance tax for estates under £2 million.
Raising the minimum profit threshold for corporation tax to £100,000 and reducing the rate to 20 percent, then to 15 percent after three years.
Increasing the VAT threshold to £150,000.
Abolishing IR35 rules.
Scrapping VAT on energy bills, lowering fuel duty, and abolishing environmental levies and the VAT Tourist Tax.

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