Election campaign tax update – Week One: 22-31 May

Here is our round-up of tax and related developments so far in the campaign.

Conservatives

Additional personal allowance for pensioners

One of the main pledges by the Conservatives so far is the introduction of “triple lock plus”, which would create an additional income tax allowance for pensioners on top of the main income tax personal allowance. Downing Street has suggested that its proposals would mean “eight million pensioners would save £100 in tax from next year and almost £300 a year by the end of the decade”. The £2.4 billion cost of the policy would be paid for through "clamping down" on tax avoidance and evasion, the Conservatives say.

According to the Institute for Fiscal Studies (IFS), half of the giveaway from the £2.4bn pledge would come from the Government unpicking its own tax policy on frozen tax thresholds. The IFS said in its analysis that the proposal was rather like “taking £100 off someone, giving them £200, and expecting them to think they are £200 better off”.

In an explainer, CIOT agree that the policy represents a tax cut for some and a simplification for those kept out of income tax but point out that the policy would affect pensioners in different ways: “Some pensioners are already paying income tax and some are very unlikely to ever pay income tax even if their personal allowance stayed the same.”

Labour dismissed the pledge as “desperate” and said the Tories planned to undermine the state pension by abolishing National Insurance. Labour has repeatedly attacked the Conservatives over the potential impact on pensioners of the government’s ambition to scrap NI, claiming in an attack ad that such a move would put people’s pensions “in real jeopardy”.

Other developments

During an interview with the Times, Rishi Sunak said that he is “confident” that he can lower the tax burden if he is re-elected to government, adding “Now our (economic) plan is working we can start cutting taxes”.

The Chancellor has also said that Conservatives will cut taxes if re-elected, with inheritance tax, marginal tax rates and taxes on savings identified. In an interview with the Telegraph, Jeremy Hunt described inheritance tax as “profoundly anti-Conservative” and promised to focus on tax cuts that reduce taxes on work and encourage saving. He said: “Our priority will be taxes that boost growth. So that can be business taxes that boost investment. But it's also taxes on work.”

Writing for the Telegraph, Hunt committed “that not only will a future Conservative government not increase any rate of income tax or national insurance, but we won’t increase the main rate of VAT for the duration of the next Parliament”. They challenged Labour to do the same (see below). During the Spring Budget, Conservatives also shared their intention to abolish national insurance completely.

On Radio 4’s Today programme yesterday (30 May) the Chancellor was pressed about whether the income tax threshold would stay frozen. He confirmed it would be for the next three years. But, he added: “I can absolutely undertake that the threshold freeze that we introduced until 2028 will not continue after that.”

The Times has suggested that the Chancellor is considering raising the stamp duty threshold from £250,000 to £300,000. However, it remains to be seen whether this rumour would be included in the Conservative election manifesto.

Labour

Labour have not announced any new tax proposals this week but have reconfirmed some existing ones and gone further than previously in committing not to increase rates of VAT.

The party reaffirmed promises not to increase income tax or national insurance rates. While Rachel Reeves did not rule out spending cuts to tackle the “difficult decisions”, she told the BBC that Labour would not put forward “unfunded proposals”. She added: "We want taxes on working people to be lower and we certainly will not be increasing the rates of income tax or national insurance, and that applies to all the bands of income tax.”

Speaking at a Rolls-Royce event in Derby, Reeves stressed that there would be “no additional tax rises” beyond those already outlined if Labour wins the election. Additionally, the Shadow Chancellor said that Labour would not hold a Budget before September, and not hold one without an independent forecast by the Office for Budget Responsibility.

Labour have confirmed they would keep to Conservative plans to freeze tax thresholds through to 2028 but have not made any promises on what the party would do beyond that.

On Wednesday evening, following Conservative claims that Labour had a secret plan to raise VAT, Reeves expanded her commitment to not increasing VAT either. This was reiterated by Shadow Chief Secretary to the Treasury Darren Jones the following day.

Meanwhile, Keir Starmer, Leader of the Party, has stressed that VAT on private school fees would be introduced on “day one” under a Labour government.

Asked whether Labour would match the Conservatives’ plan to “keep the state pension tax-free”, Labour said it would not match the pledge, with Shadow Business Secretary Jonathan Reynolds telling BBC Breakfast: “I don’t think it’s credible, I don’t think it’s real, and I think pensioners will completely see through this.” The party stresses it remains “absolutely committed” to the triple lock.

On business taxes, a spokesperson for Shadow Chancellor Rachel Reeves has told Bloomberg that there are “no plans” for additional taxes on banks. Citing ‘people familiar with the matter’, Bloomberg say this includes a windfall tax on bank profits, increasing the surcharge on bank profits or introducing a financial transaction tax.

Labour has repeated its pledge to go further than the Conservatives by closing the inheritance tax ‘loophole’ for non-doms, with Reeves saying “We will take on the tax-dodgers, because if you make your home and do your business in Britain then you should pay your taxes here too”.

Both the Conservatives and Labour have pledged to raise up to £6 billion extra a year by cracking down on tax evasion and avoidance. However, that amount has been questioned, with experts including the Association of Taxation Technicians and Chartered Institute of Taxation branding it a “tall order”.

Liberal Democrats

The Liberal Democrats have proposed increasing taxes on social media and other large tech companies to fund mental health professionals for schools in England. Their plan would involve tripling the amount paid by these companies via the Digital Services Tax. The Office for Budget Responsibility has said the tax is on course to raise around £760 million in 2024/25, meaning that the Lib Dem proposal could potentially raise an additional £1.5 billion.

The Lib Dems have also announced plans for free school meals for all primary school children funded by a new share buyback tax. The party says its 4% share buyback tax, which would be levied only on FTSE 100 listed corporations, would be similar to the buyback tax introduced in the United States by President Biden. It estimates the move would raise around £1.4 billion a year.

The Lib Dems have, like Labour and the Conservatives, ruled out increasing VAT rates.

Other Parties

Reform UK has unveiled a proposal to charge British businesses more in tax if they employ foreign workers. Party leader Richard Tice said an "employer immigration tax," which would increase the employers’ national insurance rate from 13.8% to 20% for firms hiring non-UK workers, would incentivise jobs for British nationals. However, the tax rise would not apply to health and social care sectors or small businesses with five employees or less.

Tice is also reportedly putting together a team of lawyers and KC’s to challenge Labour’s policy to impose VAT on private schools, saying he would use “every legal avenue” to block the plans if Labour wins the election.

Other Reform UK proposals in the party’s draft manifesto include:

• Raise income tax threshold to £20,000 
• Reform inheritance tax – with no tax applied on estates worth under £2m
• Cut corporation tax to 20 per cent, then to 15 per cent after five years.
• Reform the tax system – “Major simplification is needed. At over 21,000 pages, the UK’s tax code is a burden.”

Scotland's first minister John Swinney has called on Keir Starmer to commit to an emergency budget if Labour win the general election. He claimed Labour have " signed up to the tight fiscal limits of the Tories, they’ve signed up to tight borrowing that is austerity on steroids”. The party’s Westminster leader Stephen Flynn has repeated accusations that Labour’s plans to end new oil and gas licences and extend a windfall tax on fossil fuel giants would cost 100,000 jobs.

Launching the Green Party’s campaign, co-leader Adrian Ramsey said: “We will make the tax system fairer so that we can afford to invest in the people who work in our hospitals and surgeries, so that they stay here, bringing down waiting lists so people don’t miss out on life-saving operations.”

The other Green co-leader Carla Denyer told Radio 4’s Today programme this morning that her party’s manifesto will propose:

• Equalising capital gains with income tax
• Removing the cap which means those with high incomes pay less NI
• Introducing a wealth tax applying to those with over £10 million in wealth at one per cent on their wealth above that figure

Those three changes would raise over £50 billion a year by the end of the next Parliament

We will continue to provide weekly updates on tax policy developments through the campaign.