Election campaign tax update – Week Three: 8-14 June

Here are our round-up of tax and related developments from the past seven days:

Conservatives  

On Tuesday the Conservatives published their manifesto, proposing £17 billion in tax cuts.

Relevant policies include:

• Reduce employees’ National Insurance (NI) by an additional 2% by 2027
• Abolish NI for most of the self-employed
• Increase the personal allowance for pensioners by introducing a new age-related personal allowance
• Eliminate stamp duty land tax on properties valued up to £425,000 for first-time buyers
• No increase in income tax or VAT rates
• Move to a combined household income threshold of £120,000 for the child benefit charge
• Two-year exemption for capital gains on sales of residential properties by landlords to their tenants
• Raise at least a further £6 billion a year from tackling tax avoidance and evasion by the end of the parliament

Labour called the Conservative manifesto ‘desperate’, saying it was “stuffed full of unfunded spending commitments”. Paul Johnson, director of the Institute of Fiscal Studies, said that the tax cuts were “definite giveaways” paid for by “uncertain, unspecific and apparently victimless savings”.

The Conservatives also have a long list of things they would not do if returned to office. This includes:

• Increase the rates of income tax, corporation tax or VAT
• Increase capital gains tax
• Increase the number of council tax bands, carry out a council tax revaluation or cut council tax discounts
• Introduce any new taxes on pensions, scrap the 25% tax-free lump sum or stop providing tax relief on pension contributions at their marginal rate
• Scrap Private Residence Relief
• Scrap the Enterprise Investment Scheme, Seed Enterprise Investment Scheme, Venture Capital Trusts, Business Asset Disposal Relief, Agricultural and Property Relief or Business Relief
• Introduce road pricing, a frequent flyer levy

Labour have accused the Prime Minister of “profoundly failing” pensioners. Shadow Pensions Secretary Liz Kendall argued that the number of pensioners paying income tax almost doubled in 2023-24, suggesting that the freeze of income tax thresholds is the reason behind the rise.

More on the Conservative manifesto tax and related policies here.

Labour  

Published on Thursday, Labour's general election manifesto contained no tax (or any other) surprises but did set out plans to generate £8.6 billion in extra tax revenue through a range of previously announced policies.

These are:

• Closing further non-dom tax loopholes and investing in reducing tax avoidance (£5,230m) (NB. Notwithstanding the description this includes broader measures to reduce the tax gap)
• Applying VAT and business rates to private schools (£1,510m)
• Closing carried interest tax loophole (£565m)
• Increasing stamp duty on purchases of residential property by non-UK residents by 1% (£40m)
• Windfall tax on oil and gas giants (£1,200m)

The party has ruled out increasing rates of income tax, NI, corporation tax and VAT.

Labour would also:

• Cap corporation tax at the current level of 25%
• Retain a permanent full expensing system for capital investment
• Replace business rates with a new system to level the playing field between the high street and online giants
• Publish a roadmap for business taxation for the next parliament
• Commitment to one major fiscal event a year
• Support implementation of the OECD global minimum rate of corporate taxation and back international efforts to make sure multinational tech companies pay their fair share of tax

Labour’s proposals to improve tax compliance include modernising HMRC, changing the law to tackle tax avoidance, increasing registration and reporting requirements, enhancing HMRC’s powers, investing in new technology and building capacity within HMRC.

Responding to the manifesto, Paul Johnson from the IFS described the tax and spending increases announced as ‘trivial’, warning Labour has left itself “no room” within fiscal rules for any more spending than planned by the current government.

Responding for the Conservatives, Chief Secretary to the Treasury Laura Trott said Labour had “deliberately failed to rule out 18 potential tax rises”. “It’s a tax trap manifesto from a Labour Party that has tax rises coded into its DNA," she claimed. In particular she claimed that Labour is "secretly planning to put capital gains tax on your primary residence”. Right-leaning newspapers such as the Telegraph have also repeatedly claimed that Labour has secret plans to raise CGT and other taxes.

Reeves, Sir Keir Starmer and other party spokespeople have so far resisted calls to extend the list of taxes Labour would not raise beyond the four taxes listed above, sticking to the formulation that they have “no plans” for further tax increases and that nothing in the party’s plans requires additional tax to be raised.

Ahead of the manifesto release, the Shadow Business Secretary, Jonathan Reynolds, acknowledged that Labour will maintain existing plans to keep income tax thresholds frozen if it wins the election. The freeze on the personal allowance is set to continue until 2028 and Reynolds said he needed to be ‘candid’ that Labour would continue with the plans, which amounted to a “tax rise”. Meanwhile, Reeves has said that when the finances allow she wants to raise thresholds: “I want to bring taxes down and I want those tax thresholds to go up so people are not paying so much tax on their income”.

The Financial Times reports that Labour has dropped plans to reintroduce the pensions lifetime allowance, with Reeves said to be concerned it would add uncertainty for savers and be complex to deliver.

Shadow Health Secretary, Wes Streeting, said that Labour would not be able to match the Conservatives’ 2p cut to national insurance because “the money simply isn’t there”.

Prior to the manifesto publication, the Conservatives challenged Labour to match their pledge to freeze the number of council tax bands. Speaking with the Today programme, Pat McFadden, Labour’s national campaign co-ordinator, stated that reforming council tax is “not something that we’re planning to do”.

More on Labour’s manifesto tax and related policies here.

Liberal Democrats 

The Lib Dems’ general election manifesto proposes to raise nearly £27 billion extra in tax revenue by the final year of the Parliament, from measures including a crackdown on tax avoidance and evasion, reforms to capital gains tax and raising more from large businesses in a number of sectors.

The party’s revenue-raisers (with anticipated revenues for 2028-29, the likely final year of the next Parliament):

• Reforms to capital gains tax (£5,210m)
• Restoring the bank surcharge and bank levy to 2016 levels (£4,250m)
• Increases to taxes on flying targeting frequent flyers and private jets (£4,000m)
• Changes to energy profits levy including scrapping investment allowance (£2,120m)
• Increase Digital Services Tax to 6% (£2,090m)
• Tax on share buybacks (£1,420m)
• ‘Sewage Tax’ on water company profits (£260m)
• Tobacco company profits levy (£290m)
• Tackle tax avoidance and evasion (£7,230m)

The party’s reforms to CGT would raise the annual exempt amount to £5,000 and introduce a new “inflation allowance”, but rates would increase to 20% (for gains up to £50,000), 40% (between £50,000 and £100,000) and 45% (over £100,000). Unlike now, where your CGT rate is determined by adding together your income and capital gains, the rate would be based solely on your gains.

Other Lib Dem manifesto proposals include:

• Abolish business rates and replacing them with a Commercial Landowner Levy
• “End retrospective tax changes such as the loan charge”, and review the government’s off-payroll working IR35 reforms to ensure self-employed people are treated fairly
• Priority for tax cuts, when the public finances allow, would be to cut income tax by raising the tax-free personal allowance
• Compulsory levy on gambling companies to fund research, prevention and treatment.
• Work with partners in international forums, including the OECD and the UN, to tackle international corporate tax avoidance and make the case for increasing the global minimum rate of corporation tax to 21%
• Replace the apprenticeship levy with a broader and more flexible skills and training levy
• Establishing a new dependent contractor employment status in between employment and self-employment, and reviewing the tax and NI status of employees, dependent contractors and freelancers to ensure fair and comparable treatment
• Extend the soft drinks levy to juice-based and milk-based drinks that are high in added sugar
• Scrap VAT on children’s toothbrushes and toothpaste

Responding to the Lib Dems manifesto, IFS’s Paul Johnson stated: “By focusing on taxing banks, energy companies and tech giants, many of these tax rises are intended to look ‘victimless’ - but of course they are not. We are already raising more from taxing companies than at any time in decades. Moreover, there are clear risks that their package of tax measures would not raise the £27 billion a year that they claim.”

More on the Lib Dems’ manifesto tax and related policies here.

Green Party

The Green Party of England and Wales launched their manifesto on Wednesday, proposing higher taxes on wealth, carbon, capital gains and higher earners.

Their proposals include:

• Wealth tax of 1% annually on assets above £10 million and of 2% on assets above £1bn
• Introduce a carbon tax on all fossil fuel imports and domestic extraction. This levy, set initially at £120 per tonne of carbon emitted and rising over ten years to a maximum of £500 per tonne, could raise to an additional £80bn annually by the end of the Parliament.
• Removing the Upper Earnings Limit that restricts the amount of National Insurance paid by high earners, so the rate is 8% on annual wages above £50,270
• Aligning the tax rates on capital gains and investment income with the tax and NIC rates on employment income
• Single rate of pension tax relief at level of the basic rate of income tax
• Reform inheritance tax, ensuring that intergenerational transfers of wealth are taxed more fairly (no further details provided)
• Council tax revaluation
• A survey of all landholdings to pave the way for a Land Value Tax (which is a long-term policy aim)
• Introduce a windfall tax on banks when excessive profits are being made
• Increase windfall tax on oil and gas production
• Changes to VAT, reducing it on hard-pressed areas such as hospitality and the arts and increasing it on financial services and private education
• Clamp down on tax dodging and ensure that HMRC has the resources it needs to reduce the tax gap

Added together the tax changes in the manifesto are estimated to raise £172 billion extra a year by 2029-30.

Responding to the Greens’ manifesto, the IFS said that: “The Green Party has set out a vision which would see the size of the state increase on an unprecedented scale… Whether they could really raise over £90 billion from a carbon tax is doubtful, not least because the more successful the tax is at changing behaviour, the less it would raise. The windfall tax measures would only bring in temporary revenue. The Greens would find that additional tax-raising measures would be needed to fund their planned permanent spending increases.” 

Similarly to the Green Party in England, the co-leader of the Scottish Greens, Lorna Slater, says her party would introduce higher taxes for the “super wealthy” and the fossil fuel industry. She criticised other political parties for avoiding discussions about tax reform. Speaking to BBC Scotland News, she said: “They all seem to be scared to talk about tax, they both promise that they won’t increase taxes but at the same time that they will bring better public services and investment. They can’t do that, the maths simply does not add up”.

Other Parties  

In Wales, Plaid Cymru has advocated for increased funding for Wales and a £20 rise in child benefits in its general election manifesto. Party leader Rhun ap Iorwerth supported a tax system with higher windfall taxes on energy companies and has called for Wales to have greater control over its natural resources and for policing powers to be transferred to the Senedd. Our report on Plaid Cymru’s manifesto will be published next week.

Reform UK has pledged to abolish inheritance tax for estates worth less than £2 million and reduce the tax rate from 40% to 20%. In another promise, the party has announced plans to raise the personal allowance threshold to £20,000 from its current level of £12,570, which would cost around £40 billion and remove 7 million people from the tax system. But the Mail quotes former Conservative leader Sir Iain Duncan Smith accusing Reform of “taking the public for complete fools” over the scale of its “unaffordable” tax-cutting pledges. Reform UK will release their manifesto on 17 June.

In Scotland, the First Minister has suggested that the UK should adopt Scotland's approach to raising taxes. John Swinney has said that Labour has “signed up” to £18 billion of spending cuts planned by the Conservatives and argued that higher tax rates could eliminate the need for these cuts. He added that, in Scotland, workers earning below £28,850 pay less tax than those in the rest of the UK, while those earning above this threshold pay progressively more.