The battle for No 10 is being fought with the UK’s tax system at the heart of
the campaign, however, businesses and advisers are still demanding to know what
a new administration will mean for them.
A stand-off has emerged between the parties on tax, capturing the headlines,
but without depth of detail – often just rehashed previous policies with
The main battle has been waged between the Conservatives insisting that tax
rises can be prevented by slashing public waste, and Labour countering that the
rich must pay their share to drive economic recovery.
And the parties have been forced to reveal more detail following on from the
rushed Financial Bill “washout” process.
Labour, launching its manifesto, said it has taken “tough choices on tax” as
it looks to halve the public deficit.
It cited the bankers’ bonus tax, reduced tax relief on pensions for the best
off, a new 50p tax rate on earnings over £150,000 and 1p on National Insurance
Contributions as its main planks on taxation. “Our National Insurance changes
will mean that no one earning under £20,000, or any pensioner, will pay more. It
is fairer than alternative options like [increasing] VAT – which we have not
increased since 1997,” the manifesto stated.
The Conservatives countered by saying the next government must set out a
clear and robust plan for restoring the public finances.
However, the Tories have said that they will raise the NI threshold for
employers and staff, neutralising some of Labour’s 1% rise. However, the policy
does seem to accept that extra revenue needs to be raised using NI.
“The current deficit must be balanced earlier than Labour’s proposals. This is
crucial for Britain’s economic future,” the Tories said.
The Liberal Democrats are simply looking to pick up the pieces as the two
front runners duke it out.
Despite Labour’s VAT rhetoric, all three of the major parties are reluctant
to officially rule out a rise. Advisers have flagged up the extra £12bn that
would be generated by VAT going up to 20% as an obvious revenue raiser.
Labour has said it will not raise the basic, higher and new top rates of tax
in the next Parliament, and renewed a pledge not to extend VAT to food,
children’s clothes, books, newspapers and public transport fares.
“As we more than halve the fiscal deficit over the next four years, we will
ensure that we do so in a fair way with a combination of a return to economic
growth, cuts to lower priority programmes and fair tax rises,” said Labour.
Responsibility at the top means people paying their fair share, according to
Labour, a stance which the Liberals agree with in part.
Unsurprisingly, the Conservatives are playing on Labour as “taxing the rich
and businesses” party, which has brought many influential business people
onside, but this advantage could be cancelled out if the prospect of a hung
Parliament becomes a reality.
This could open up the intriguing possibility of seeing Vince Cable in No 11,
frustrating both of the other political parties and further affecting clarity in
the overall system. Some advisers have suggested the Tories missed a trick by
not appointing Ken Clarke as a stop-gap chancellor-in-waiting.
“Osborne just hasn’t got the experience,” said one adviser who asked not to
“Clarke could have come in as an ‘enforcer type’ and done all the dirty work
that would be needed if the Tories do get in. They simply can’t completely rule
out tax rises in the future.”
The profession has repeated calls for the new administration to use the
election as a chance to iron out the kinks in the UK’s tax system.
“In the next Parliament, the UK needs to develop a much more straightforward
and stable tax system,” said the ICAEW. The institute called for an overhaul to
reform the way tax law is formulated in order to encourage “clarity, fairness,
effectiveness and certainty”.
It also has warned that the structural problems with the UK tax system – such
as the length of the tax code – have to be met head on if the UK is to improve
the environment in which businesses can grow, create wealth and generate tax
revenues as a result.
Business groups have also weighed in by calling for the business framework to
be tweaked – making the UK more competitive by reducing the corporate tax
Advisers, FDs and taxpayers will hope that whatever the outcome of the
election, the fact that the UK is still a long way from recovery will not be
forgotten when the celebrations die down.
IN OUR VIEW
To give the UK public a fair stab at making an informed choice on a new
government, the parties must ditch the rhetoric and transparently map out the
tax and fiscal implications of reducing the huge deficit the UK finds itself in.
Otherwise it’s just an electoral shot in the
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