Election campaign tax update – Week Two: 1-7 June

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

Conservatives  

On Wednesday Chancellor Jeremy Hunt announced what the Conservatives are calling the “family home tax guarantee” pledge. Writing in the Telegraph, he said “This guarantee is a commitment not to increase the number of council tax bands, undertake an expensive council tax revaluation, or cut council tax discounts. It is a commitment to maintain private residence relief, so that people’s main homes are protected from capital gains tax. And it is a commitment not to increase the rate or level of stamp duty”. Hunt urged Labour to match these promises (see below).

The Chancellor today (Friday) went further than previously on the Conservatives’ plans for the high income child benefit charge. As well as confirming that the party want the payment to be based on household rather than individual income, he said they would set the household income threshold at which families would start to lose child benefit at £120,000, double the current highest earner threshold. He said this would result in a £1,500 tax cut for 700,000 families.

The heated debate about the Conservative's “triple lock plus” policy (raising the personal allowance for pensioners only) continued this week with the Prime Minister claiming Labour’s failure to match this new policy means pensioners could face a £1,000 “retirement tax”.

The Chancellor, speaking to the Sunday Telegraph, added that the Conservatives will not raise any taxes on pensions nor introduce new ones during the next parliament. He accused Labour of ‘betraying’ pensioners and suggested that a Labour government will “look to increase taxes left, right and centre when they get in”.

However, the policy has faced criticism for adding to the growing expense of state benefits and fuelling intergenerational inequality. Analysis by Quilter for the Telegraph indicates that the triple lock plus policy would create a new tax trap for the very wealthiest pensioners, with an effective tax rate of 61.24% for those with a retirement income of £127,420 a year.

Meanwhile, senior Conservatives have urged Sunak to abolish inheritance tax (IHT) in his election manifesto. Nadhim Zahawi, a former Chancellor, described the tax as having “catastrophic results” for families and the economy. Sir David Davis, former Brexit Secretary, has suggested raising the threshold to £5 million. In his podcast, former Chancellor George Osborne predicted reductions in IHT saying: “I think a pledge to abolish inheritance tax or all but abolish inheritance tax is probably coming down the track.” 

To mark D-Day, in a new pledge the Conservatives have also promised to extend the National Insurance holiday for veterans’ employers. Employment among veterans has risen from 80 per cent to 89 per cent since 2015, higher than the UK average, the party said.

While the Conservatives have accused Labour of planning tax increases (see below) Labour have continued to push the idea of a black hole of roughly £70bn a year in Conservative plans as set out in this dossier which includes as supposed Conservative policies abolishing National Insurance and inheritance tax. We will have to wait for the party manifesto to see whether these actually are policy for the next Parliament.

Labour  

The highest profile tax debate of the week has been the Prime Minister’s claim during Tuesday’s leaders debate that spending plans committed to by Labour would result in a £2,000 tax increase per working household to cover a £38bn gap in the party’s plans. Keir Starmer accused the PM of ‘lying’ about Labour's plans. He said that Labour’s plans did not require higher taxes, other than ones already set out, such as VAT on private school fees and closing private equity tax loopholes.

The Conservatives have since acknowledged that the figure Sunak used – which is also being used extensively in campaign materials and advertising – spans four years. Additionally, the day after the debate a letter, written before the debate, by the Treasury permanent secretary, emerged, stating that the calculation of £38bn of uncosted spending used by Sunak “includes costs beyond those provided by the civil service”.

Factcheckers Full Fact have judged the Conservative figure as “unreliable”. And they add: “Even if the figure was right, we can’t be certain this money would be collected by raising taxes, and if it was, families are unlikely to be affected equally.”

During an interview with Sky, Shadow Defence Secretary John Healey was challenged on whether Labour would sign up to the Conservatives’ “family home tax guarantee” pledge. He did not rule out rises on SDLT or capital gains tax, but emphasised that Labour’s plans “do not require us to start looking at raising taxes across the board”.

On Wednesday, following media reporting that Shadow Chancellor Rachel Reeves had, as a backbench MP, proposed setting a flat rate of pension tax relief at 33 per cent, the Shadow Chancellor’s spokesperson indicated that Labour has “no plans” to change the current regime of pension tax relief. The spokesperson added: “It will not be in our manifesto. It’s not something we are looking at and we have no plans to introduce it.”

On a similar theme, a 2018 pamphlet by Reeves was highlighted by the Sunday Express, in which she advocated that inheritance tax “needs to be either reset or shifted wholesale to a tax on the receipt of any gifts throughout a lifetime, making tax on all gifts equal and thus avoidance more difficult.” Further speculation focuses on whether Labour might extend the scope of inheritance tax, including to pensions.

Around 32 state boarding schools will reportedly not be subject to Labour’s VAT plans, a ‘source’ has confirmed, after the State Boarding Forum raised concerns that state school pupils would see fees rise under the plans.

There are reports that some in Labour have called for Reeves to raise capital gains tax rates closer to the rate of income tax if the party wins the election, which could raise an estimated £8 billion.

Former New Labour advisor Patrick Diamond has called on Keir Starmer to consider bringing in “higher taxes on wealth” to generate more revenue. Diamond and his political academic colleague Colm Murphy have argued that: “There is an overwhelming economic and ethical case for higher taxes on wealth and for taxing capital gains at the same rate as income”.

Liberal Democrats 

This week the Lib Dems pledged an extra £1 billion investment each year in the Public Health Grant, which the party would fund with a crackdown on tax evasion. It’s unclear whether they are looking specifically at evasion or whether this is shorthand for the whole of the tax gap – probably the latter as they link to the tax gap from the party’s press release and state that they “would recover more of that money through significant investment in HMRC.”

The Lib Dems are expected to publish their manifesto on Monday, making them the first major party to do so. i.News predicts the party may include the following tax-related promises in the manifesto:

• Ending tax avoidance: reversing tax cuts for big banks, abolishing the capital gains tax-free allowance, and tackling tax avoidance.
• Bringing in a tougher windfall tax: proposing a one-off windfall tax on oil and gas super-profits.
• Scrapping business rates: replacing business rates with a new levy on commercial property owners.

Party leader Sir Ed Davey has repeated the party’s opposition to Labour’s flagship policy to charge  fees. He stated: “I’ve never thought in principle that VAT should be applied to education. I just think it shouldn’t be”.

Other Parties  

Further pressure was piled on the Conservatives on inheritance tax after Reform UK announced a pledge to abolish the tax for estates worth less than £2 million and reduce the tax rate from 40% to 20%.

The Green Party has presented funding plans for the NHS, aiming to provide an additional £30 billion annually and £20 billion for social care by 2030. Co-leader Adrian Ramsay highlighted that the Greens propose a higher tax for the “very richest”, specifically a 1% tax on assets over £10 million and a 2% tax on assets over £1 billion, which they estimate will raise “tens of billions” over the next five years.

Over the weekend, John Swinney, Scotland's First Minister, formally launched the SNP’s campaign in Glasgow. He accused Scottish Labour of taking “their orders from a London-based prime minister”, and said: “On austerity the Labour party has made it clear that there will be no increases in income tax, no increases in corporation tax, no increases in national insurance, no increases in VAT”. He urged Starmer to commit to delivering an ‘emergency’ budget should he be elected prime minister.