You might not have heard, but there's an election campaign underway.  And since the major parties have now launched their manifestos, it's a perfect time to see what we might have in store on the tax front.  I am going to take a look at some of the key tax promises and controversies of the campaign.  With all due respect to the other parties taking part, I'm going to focus on the Conservative and Labour Party manifestos, since they are most likely to form the next government.  And if you pay any attention to the polls, it's tempting to go one step further and only review one manifesto.  Still, anything can happen in an election campaign.

Most of the two main parties' announcements are very much designed not to scare the horses (assuming for these purposes that your horses are terrified of tax rises).  Both know full well that fiscal drag is doing a lot of work to raise taxes stealthily - the freezing of tax allowances, combined with moderate inflation raises a lot more money than you might intuit. So neither has announced anything super radical. Instead they have both fallen over each other to list the things that they won't change and the taxes they won't increase.

Sit down, let me tell you a Tory

In line with their narrative of the recent past, the Conservative manifesto adopts the position that we've never had it so good and it's time for some tax cuts to redistribute all that excess cash sloshing around public services.  How will they fund it? I'm glad you asked. Attacking tax avoiders / evaders, and reforming the welfare system. Simples! It's a wonder that the absolute dunderheads who've been in power over the past few years haven't managed to do something so blindingly obvious. Thank god this party has some fresh new ideas.

Their main tax promises are:

  • 2p off the main rate of employee NICs (by 2027) bringing it down to 6%
  • Abolition of the main rate of NICs for the self-employed by the end of the next Parliament
  • A special personal allowance for pensioners, guaranteed to keep pace with increases in the state pension
  • A frankly perplexing two year holiday from capital gains tax for landlords who sell their property to their tenants

If you're going to cut taxes, there's a reasonable consensus that reducing NICs is not a bad way to do it.  In doing so the government has reduced some of the gap between the (generally lower) taxes from passive income / investment gains and the (generally higher) taxes borne by employees and the self-employed.  Whether it should be a national priority versus - say - public spending really depends on your vision of the state, but it seems better suited to help address a cost of living crisis than reducing income tax indiscriminately.

However increasing the gap between employment and self-employment is much more questionable.  There is already a substantial premium attached to taking on someone as an employee rather than as a freelancer - employer NICs are charged at 13.8% and already drive a lot of distortive behaviour - some of it avoidance behaviour. Is that something that the government wants to exacerbate?

Talking of avoidance, the proposed exemption from capital gains tax for sales of properties by landlord to tenants - even temporary - seems like a charter for avoidance.  Such a niche proposition with such widespread potential for abuse. No doubt the legislation will contain plenty of ‘targeted anti avoidance rules’ - whether they will be effective, or effectively enforced, is another matter.

And finally there are a plethora of promises of stasis.  “We will not … raise corporation tax … increase capital gains tax … raise VAT” etc. etc. My favourite is “We will not extend National Insurance to employer pension contributions.” I wasn't aware anyone was threatening that. Is there an insinuation there? It's a bit like saying “WE'RE the party who won't come round to your house and kick your cat.”

Counting the cost of Labour

Anyone hoping for rigour and detail on the Labour Party tax proposals is going to be disappointed.  It's light on specifics, and they leave themselves plenty of room to manoeuvre. Not a bad idea until they've fully gotten to grips with the state of public finances, but it doesn't feed my appetite for wonkery.  It seems I'll have to wait for the Budget.  If they win, I mean.

Speaking of which, Labour are promising a single ‘fiscal event’ each year, rather than the 2+ we've grown used to. We have been down this path before, reader.  Former Chancellor Philip Hammond tried to do the same thing - an Autumn Budget with all the big announcements, plenty of time for preparation and consultation before the new tax year, and a Spring Statement that's more an opportunity for calm reflection without the same breakneck policy changes.

Most of the rest comes pre-announced and shouldn't surprise anyone. For completeness this includes:

  1. Reform of rules for non-domiciled individuals - the reforms are expected to align broadly with what the Conservative government has already announced, although Labour has signalled that it thinks the rules should be tighter, and there's reference to reforming the inheritance tax rules as they apply to offshore trusts.
  2. Crack down on avoidance and evasion, and substantial investment into HMRC (over £800m pa by 2028-29) to try to achieve this.
  3. Closing the ‘carried interest’ loophole whereby certain aspects of private equity executive pay are taxed generously as capital gain rather than as employment income.
  4. Reform of oil and gas windfall taxes.
  5. Removing the beneficial VAT and business rate treatment of private schools.
  6. Higher SDLT rates for non-residents buying UK real estate.
  7. Reform of Business Rates, with the expressed intention of raising the same tax but with ‘fairer’ distribution of cost.

Much like the Conservatives, Labour are also making a big deal about the taxes they won't change. Corporation tax, VAT and NICs won't be increased, we're told. They also make a commitment on income tax, but it's phrased with barristerial precision.  They say “…we will not increase … the basic, higher, or additional rates of Income Tax”.  If one were to be cynical one might say that leaves a lot of room for creative reform of the income tax system. It's disappointing that we have a political environment that seems to incentivise sneaky or complex ways of increasing taxes versus a straightforward rate increase.  In the past that's landed us with the clawback of the personal allowance and the ludicrous 60% marginal income tax rate (thanks Alistair Darling!), and the freezing of allowances during high inflation that's dragged so many more people into being higher rate taxpayers (thanks… [checks notes]Rishi Sunak!).

Notably absent from the Labour manifesto is any commitment (positive or negative) around capital gains tax. Speculation has been rife. My personal guess is that it will go up to [rolls dice] 30%, but only in [examines tea leaves] Budget 2025, and that they [flips coin] will not reintroduce indexation relief. There, that's three things I can be wrong about.  I don't recommend you head to the bookies with that hot tip.

Image courtesy of OpenAI. This is what OpenAI thinks "two crowds, arguing over red and blue books, in the style of Hieronymus Bosch" would look like