General Election 2024: How the manifestos compare on tax

Last week most of the political parties issued their manifestos. This article goes through the key tax statements in the manifestos for the Labour party and the Conservative party. It also mentions some of the more interesting tax announcements in other manifestos.

The Labour manifesto offered no tax surprises. It reiterated flag-ship policies that have been widely trailed but had little detail. Some of the other policy papers they have released over the last few months contained more detail than the manifesto.

The manifesto confirms that Labour will not increase National Insurance, income tax rates or VAT. Interestingly the wording on income tax talks of not raising the basic, higher or additional rates rather than not raising income tax per se. One might infer from this a commitment to the Conservative policy of freezing personal tax thresholds, though it is hard to tell.

The document reiterates the party’s flagship policies: reform of the non-dom regime, ending the use of offshore trusts to avoid inheritance tax, reforming the taxation of private equity and ending tax breaks for private schools. On the windfall tax for oil and gas producers, they confirmed previous statements that they will extend the sunset clause in the Energy Profits Levy until the end of the next Parliament, increase the rate of the levy by three percentage points and remove investment allowances. Labour will retain the Energy Security Investment Mechanism. 

On other business taxes the story is one of ‘steady as she goes’. They have committed to capping the corporation tax rate at 25 percent for the period of the next Parliament but include wording we have seen before about acting “if tax changes in other countries pose a risk to UK competitiveness”. They will retain permanent full expensing, although the manifesto is silent on whether Labour support its extension to leasing, and they will retain the annual investment allowance. They have reiterated that they will publish a business tax roadmap within six months of taking office.

The manifesto reiterates statements previously made that they will reform business rates in a revenue neutral way, seeking to level the playing field between high street businesses and on-line giants. They have also confirmed previous statements about reforming the Apprenticeship Levy and replace it with a Growth and Skills Levy. 

On administration, Labour have committed to two main fiscal rules. Firstly, that the current budget moves into balance so that day-to-day costs are met by revenues. Secondly, that debt must be falling as a share of the economy by the fifth year of the forecast. 

The party has also committed to always subjecting fiscal events that make significant changes to taxation or spending to an independent Office for Budget Responsibility (OBR) forecast. And in what will be a joy to tax advisers, they have committed to only one major fiscal event a year. (The writer wonders if this is to corner the tax adviser vote!) 

They have also set out plans to tackle the tax gap stating that they will “change the law” to tackle avoidance, increase registration and reporting requirements and strengthen HMRC’s powers. This will come with some investment in new technology and capacity building within HMRC. A particular focus seems to be on tax avoidance by large businesses, although HMRC’s official tax gap reports regularly show that large businesses are not a major contributor to the tax gap.

What is perhaps more interesting are the silences in the manifesto. It is silent on capital gains tax, inheritance tax, pensions tax, fuel duty, council tax and so on. 

In some of these areas Rachel Reeves, Shadow Chancellor of the Exchequer, has indicated that there are no plans to reform them, but that is not the same as confirming they will not be increased. Whilst a manifesto cannot mention every tax, the silence on these areas may indicate where future tax rises may land. The document is also relatively silent on the ‘how’ of some of their plans. Reform of business rates and a replacement of the Apprenticeship Levy have been mentioned many times over the last few months so their inclusion in the manifesto is not a surprise, but we are still none the wiser as to how they will be reformed.  

In contrast the Conservative manifesto did have a few surprise tax measures. Not only did it commit to not increasing the rates of the main taxes - income tax, National Insurance and VAT - the manifesto also promised to reduce employee National Insurance by a further 2 pence. 

In another surprise move, the manifesto also committed to abolishing the main rate of self-employed National Insurance by the end of the Parliament. This was unexpected as the Chancellor has elsewhere expressed a desire to remove some of the distortions in the personal tax system. The manifesto repeats the desire to abolish employee National Insurance, but it is an ambition not a commitment. Abolishing self-employed National Insurance completely, whilst keeping National Insurance for employed workers, once again puts a distinct wedge between the tax treatment of the employed and the self-employed which has sometimes driven negative behaviours in the way workers and businesses seek to structure their labour. 

The manifesto also committed to moving Child Benefit to a household system of assessment where the benefit is not tapered away until combined household income reaches £120,000. It also committed to a new age-related personal allowance which would ensure that the tax-free threshold would broadly track the state pension meaning that the state pension will not, in isolation, cause an individual to pay income tax.

The manifesto also committed to not increasing capital gains tax and to maintaining Private Residence Relief which exempts capital gains on the sale of a primary home. Another surprise, although small in financial terms, is a two-year temporary capital gains tax relief for landlords who sell to existing tenants. 

On council tax, the manifesto offers a Family Home Tax Guarantee such that the Conservatives will not increase the number of council tax bands, undertake council tax revaluations or cut council tax discounts. 

To help first time buyers, the Conservatives propose permanently abolishing Stamp Duty Land Tax (SDLT) for homes of up to £425,000 in England and Northern Ireland (devolved taxes apply in Scotland and Wales). They also commit not to increase the rate or level of SDLT.

Turning to business taxes, the Conservatives have committed to not raising corporation tax and also to extending full-expensing to leasing “once the fiscal conditions allow”. They also committed to maintaining research and development (R&D) tax reliefs and ensuring creative sector tax incentives remain competitive. 

For energy companies, the Conservative manifesto confirmed that the windfall tax on oil and gas companies will stay in place until 2028/29 unless prices fall back to normal levels sooner. It confirmed that the investment allowance would stay in place. Interestingly, buried on page 52 of the manifesto, it mentions extending ‘full expensing’ to the delivery of brownfield housing but there is no further detail. Under the banner of Brexit freedoms, the manifesto promises to maintain the Brexit Pubs Guarantee which means the duty on drinks on draught will be less than in supermarkets. 

For small businesses, the manifesto promised to keep the VAT threshold under review and to explore options to smooth the cliff edge that arises at £90,000. It also promised a business rates support package of £4.3 billion over the next five years.

To support the high street, the Conservatives plan to increase the multiplier on distribution warehouses that support online shopping to ease the burden of business rates for high street, leisure and hospitality businesses. 

The Conservatives will retain incentives such as Enterprise Investment Scheme, Seed Enterprise Investment Scheme, Venture Capital Trusts, Business Asset Disposal Relief, Agricultural Property Relief and Business Relief. 

In a similar vein to Labour, the Conservatives are also intending tackling tax avoidance and evasion, aiming to raise a further £6 billion a year by the end of the Parliament. This is a similar number to Labour.

The two manifestos have similarities and differences.

Both parties have committed to the same rule that debt must be falling in the last year of the forecast.

Both manifestos effectively commit to not raising the three main revenue raisers as well as capping the corporation tax rate and maintaining core reliefs such as full-expensing. Both are silent on whether inheritance tax will be reformed.

The Labour manifesto is net tax raising whilst the Conservative manifesto is net tax cutting. But in an economy where annual tax revenue is around £1 trillion the amounts involved are nibbling at the edges. 

Both manifestos expect to raise similar amounts by tackling the tax gap although interestingly the Conservative manifesto refers to tax avoidance and evasion whereas Labour’s only refers to tax avoidance. Both manifestos are relatively short on the detail of how this would be achieved but experience is that it can be difficult to raise significant amounts from initiatives in this area.

The Conservative manifesto goes further in committing to not raising other taxes, as well as offering sweeteners to target voters such as house buyers/owners and pensioners. 

With fiscal numbers that have very little headroom, largely unidentified spending cuts and a commitment to debt reducing by the end of the next Parliament, the Conservatives have left themselves with far less wriggle room in terms of tax levers to use if we have further economic shocks or growth is not as high as hoped.

The manifestos of some of the smaller parties included some tax measures that caused some eye-brow raising in our tax policy team.

The Lib Dems

The Lib Dem manifesto suggested some interesting tax policies.

From a business tax perspective the manifesto proposed:

• Restoring the Bank Surcharge and Bank Levy revenue to 2016 levels in real terms;
• Introducing ‘a proper’ tax on oil and gas super-profits;
• Increasing the Digital Services Tax to 6 percent; and
• Introducing a sewage tax on water company profits.   

These measures are estimated to raise almost £8.7 billion in 2028-29. Taxation of aviation and private jets would raise £4 billion and a levy on tobacco company profits a further £0.3 billion. There was also an eye-catching 4 percent tax on share buy-backs raising £1.4 billion and an eye-watering £5.2 billion from capital gains tax reform. 

And, in common with other parties, the Lib Dems are also seeking to tap into the tax gap for some additional revenues raising an ambitious £7.2 billion in 2028-29, significantly more than either Labour or the Conservatives.

Tax changes not included in their costings, but interesting nevertheless, were a proposal to make the case for increasing the global minimum tax to 21 percent, to end retrospective tax changes such as the loan charge and to review off-payroll working IR35 rules.

The Green Party

The Green Party manifesto proposes a huge tax raising agenda.

Their flagship policy is a wealth tax of 1 percent on individuals with assets over £10 million and 2 percent for those with assets above £1 billion. The manifesto proposes equalising capital gains tax and income tax, reforming inheritance tax and restricting upfront income tax relief on pension contributions.

Its business tax rises total approximately £43 billion and include extending the windfall tax on oil and gas producers.

It also proposes a carbon tax at an initial rate of £120 per tonne rising to a maximum of £500 per tonne of carbon emitted within ten years. 

Reform UK

There were also a number of eye-catching tax policies in the Reform UK manifesto including increasing the income tax threshold to £20,000 and abolishing inheritance tax for estates under £2 million.

On business taxes, they propose increasing the minimum profit threshold to £100,000 and reducing the rate of corporation tax to 20 percent and then to 15 percent after three years. They also propose increasing the VAT threshold to £150,000 and abolishing the IR35 rules.

On indirect taxes, they propose scrapping VAT on energy bills, lowering fuel duty by 20 pence a litre, scrapping environmental levies and abolishing the VAT Tourist Tax.

For further information please contact:

• Sharon Baynham
  
• Stefanie Redmond