In considering Budget plans alone, it’s interesting to ask which of the three main parties are the most radical when it comes to sorting the economy?
The report out from the Institute of Fiscal Studies (IFS) today can help us go some way to draw some conclusions.
After examining all the parties’ published plans the IFS reports these findings: To reach their targets for the next parliament Labour will need tax increases worth an extra £7bn. The Liberal Democrats £3bn. The Tories would probably have to reverse about half the tax cuts of £6bn (mostly national insurance) it was planning to make.
But there are more findings. There are holes in each party’s plans. After taking into account budget plans, the Conservatives still need to explain how it will cut a further £52.4bn, Labour £44.1bn and the Libaral Democrats £34.5bn.
None of them have fully explained how they intend to deal with their initial attack on the Budget deficit.
The belief was the Liberal Democrats would be more radical in raising taxes if in charge but these figures seem to contradict that. Their plans reveal a lower increase in taxation than Labour and a smaller hole to plug in order to make the target cuts in the deficit.
The IFS helps a little further with this question by providing ratios for spending cuts to tax rises. Labour’s ratio is 2:1, Lib Dems 2.5:1 and the Tories 4:1.
The Labour party is more reliant on tax rises than any of the other parties. The Tories apparently least reliant.
The numbers seem to tell us what we expect if we extrapolated party ideology. Labour will raise more in taxes, and make the less painful cut in spending. The Lib Dems are in the middle and the Tories somewhere else.
Labour has spread some of the burden across everyone with rises in National Insurance, alcohol and fuel duties, but targeted the well off through rises in income tax for those earning more than £100,000.
The Lib Dems have said they will keep all these plus intodroduce a levy on banks, introduce a mansion tax and has committed itself to a rise in capital gains tax. Plus it’s big ticket item reduce tax avoidance by £4.6bn.
In a policy sense then the Lib Dems do look more radical. They will add to the pain of the rich in a broad sense – making their houses more expensive their tax management more costly, tax them more on capital gains.
But there are those holes in the plans to deal with. As yet the parties have not explained how they will do that. The IFS says the holes point to a greater coming reliance on tax rises.
The radical nature of those rises will be judged on where they fall. What are the options?
A rise in VAT could raise large sums quickly. The Tories have pledged to cut corporation tax but have hinted at the removal of capital allowances. It’s quite clear whether that would produce a net benefit to the Treasury.
The biggest chunk of revenue comes to the Treasury via income taxes. But would a new government go there?
Anything could be up for grabs. The complicating factor is the prospect of a hung parliament.
The price of Lib Dem support might just be placing Vince Cable in No11 as the chancellor. But that is bound to cause a negotiating and horse trading over what he would or would not be able to do. What Lib Dem policies he can pursue, and which policies of his partners he would be bound to implement. It is anybody’s guess how that might work out. Which policies under the pressure of political reality would be left intact and which would be discarded.
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