This column will undoubtedly be overtaken by events. Even as this is being
written the leaders of the main political parties are still haggling over what
form the next government will take Will it be a Lib-Con affair? Or will it be
under a Lib-Lab regime?
There are two crucial questions for readers of this newspaper. Who will be
Chancellor of the Exchequer? And what will be the future shape of tax policy in
Right now it is impossible to provide a response to the first question
(although you might know the answer by the time you read this) but the second is
one on which we can speculate.
The Tories might not buy into a big rise in capital gains tax, as pledged by
the Liberal Democrats, but in turn they would not stomach a rise in the
inheritance tax threshold – labelled as tax cut for millionaires by Nick Clegg.
And despite the recent Tory interest in making the tax system fairer, it’s not
clear they would go as far as raising the personal income tax allowance to
£10,000 in the way the Lib Dems would like. Labour could live with changes to
CGT and a rise in the personal allowance.
But as BDO’s senior tax partner Stephen Herring points out, what would a
Lib-Lab arrangement do with VAT? That’s an enormous question because, though
there is a dislike for rises in VAT within Labour (it tends to
disproportionately affect the least well off), it could raise a lot of money
with even a modest rise in the standard rate.
But if the last few days since the general election has taught us anything it
is that it is not easy to settle policy arrangements between political parties
who possess diverging views on how the economy should be run and who should bear
the brunt of the tax burden. What then of tax policy? How could two parties
joined in government settle future tax measures?
It’s not too difficult to imagine that each time a Budget came around we
would go through the type of horse trading we have seen this week with all the
press leaks and secret briefings, and all the other methods that politicians use
to exert pressure.
And as exciting as that might seem from an observer’s point of view, it’s not
clear that such behaviour would be useful or beneficial for the state and for
If two parties do agree to work together they will therefore need to focus,
not just on who sits in cabinet or which manifesto policies survive, but on
settling a process for agreeing and implementing future policies.
Tax professionals will be looking for this kind of stability because if there
has been one criticism consistently levelled at Labour tax policy it is its
propensity to create “uncertainty”. It is uncertainty that any new government
will have to eradicate and that will take a considerable application of
determination from all parties to rise above party interests. It’s anybody’s
guess, at this stage, whether that’s possible over a sustained period.
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