UK General Election 2019: manifesto tax pledges

This article was first published by LexisPSL on 27 November 2019 and is reprinted with their kind permission.

Q1: What are the parties’ proposals on personal taxation?

The Conservatives’ much-vaunted tax lock of 2015 (a commitment not to raise the rates of income tax, Class 1 NICs and VAT) is back for 2019 after going missing in action in 2017, albeit that it no longer has the catchy label. Placed on a statutory footing by the Cameron Government, the tax lock was originally intended to last until 2020 but was instead sunsetted by the dissolution of Parliament for the 2017 general election. The realisation that (had certain other things not happened) we would still be within the lifetime of tax lock 1.0 may cause the reader to reflect upon the sheer pace of recent UK politics…

In the spirit of generally maintaining the status quo the biggest change announced by the Tories is that the NICs threshold will increase to £9,500 in 2020, with an aspiration expressed that it would rise to £12,500 by 2023 (although it is noticeable that only the initial increase has been costed, perhaps suggesting that further increases may ultimately not survive contact with developing economic realities). No further changes to the personal allowance appear to be contemplated.

By contrast the Labour and Liberal Democrat manifestos both present far bolder reforms to personal taxation, though in relation to income tax mainly regurgitating policies from past election cycles.

Labour are sticking with their 2017 proposal to reduce the threshold for the 45% additional income tax rate to £80,000 and reintroduce a 50% rate (now badged as the Super-rich rate) for earnings above £125,000 (up from £123,000 in the 2017 manifesto). Slightly oddly, these specific rates are nowhere to be found in either the actual manifesto or the accompanying funding outline; instead the manifesto confines itself to a coy reference to requiring those who earn over £80,000 to pay a little more income tax. Another recycled 2017 proposal is the excessive pay levy on employers of individuals earning more than a defined limit and as a percentage of the total compensation above that limit, now fleshed out to confirm that this will equate to 2.5% for income paid above £300,000; 5% for income paid above £500,000; but with an additional higher rate of 7.5% for income paid above £1m. The Fair Tax Programme document warns that what constitutes income being paid will be widely drawn to prevent avoidance, as one might expect.

The Liberal Democrats repeat their 2017 pledge to put 1p on income tax, which the reader assumes will again equate to an increase in the basic, higher and additional rates of income tax by 1p, with a commensurate tax increase of 1p on the rates applicable to dividend income, but the detail is not explored. As before, this will be ring-fenced for expenditure on NHS and social care, with specific reference to investment in mental health services. This will be neither levied nor spent in Scotland.

The big change proposed by both Labour and the Liberal Democrats is to remove the rate differential applicable to income and capital gains (turning back time to a position last legislated for in 1988). Both parties would scrap the separate capital gains allowance, but whilst Labour would only tax gains above a £1,000 de minimis and introduce a form of indexation allowance by reference to 10-year bond rates, the Lib Dems go all in for unified taxation of salaries and gains via a single allowance. Not to be outdone, Labour would also abolish the lower rate for dividend income and remove the £2,000 tax-free dividend allowance, putting dividend income, salaries and capital gains in the same pot. For those old enough to experience the ebbs and flows of tax policy, there will be a strong sense of déjà vu to these proposals on the taxation of capital gains.

Notably, the Green Party manifesto is very much on the same page here, but goes even further with a proposal to merge employee NICs, CGT, inheritance tax, dividend tax and income tax into a single Consolidated Income Tax.

The Greens are also aligned with Labour on another splashy announcement: both parties would abolish the remittance basis of taxation for UK non-domiciled individuals, although Labour would consult on an exception for foreign residents present in the UK for short periods.

The days of entrepreneurs’ relief are almost certainly numbered: Labour would scrap it (and consider a more targeted alternative) and even the Tories commit to reviewing it.

Q2: What are the parties’ headline proposals on corporate taxation?

As advertised prior to the launch of their manifesto, the Conservatives will scrap the planned reduction in corporation tax to 17% in 2020, instead maintaining the current 19% rate (NB this will require legislation as the 17% rate is already on the statute book).

As in 2017, the Liberal Democrats would return the corporation tax rate to 20% (timing unclear) and keep the rate stable with a predictable future path, whereas Labour plan to gradually increase the rate to 21% in 2020, 24% in 2021 and 26% in 2022 (with lower rates for small companies of 19% from 2020 and 21% in 2021). Labour explicitly note that this would leave rates lower than they were when the last Labour Government left office (in 2010).

The Green Party sits in the middle at 24%, which their manifesto notes is the OECD average. The Brexit Party would cut corporation tax to boost the smallest businesses, effectively providing for a corporation tax allowance for the first £10,000 of pre-tax profits, although it is not clear if larger companies would also benefit from this (and there is some ambiguity as to whether in fact the intention is that businesses with a tax bill of under £10,000 would be exempt from corporation tax).

The ever-controversial issue of business rates received a lot of coverage in the main 2017 manifestos and has not gone away in the intervening years. Whilst the Conservatives are still promising review and further reductions for the retail sector, Labour and the Liberal Democrats contemplate replacing rates with a commercial land levy and the Green Party would abolish business rates and all other property taxes to make way for a land value tax on commercial and residential property (see below for further detail).

Labour also published a policy paper supporting a proposal to review all corporate tax reliefs and ensure that they remain both effective and aligned with policy intentions.

Labour also stands out as the one party committed to a major extension of UK stamp taxes, rebranded in international terms as a financial transaction tax. The extensions promised in 2017 are back (eliminating the existing market maker exemption; extending stamp duty to equity and credit derivatives; and extending stamp duty to debt instruments (corporate bonds)), but are now accompanied by a range of further targets (forex spot and derivatives trades, interest rate derivatives and commodities spot and derivatives trades), albeit with reduced rates for market participants.

Q3: What are the specific proposals on land taxation?

The opposition parties present a range of proposals on land taxation, all of them radical to differing degrees but broadly similar in outline. In increasing order of departure from the status quo (and granularity of detail given):

• Labour will review the option of a land value tax on commercial;
  landlords as an alternative to business rates;
• the Liberal Democrats would replace business rates with a Commercial
  Landowner Levy charged only on land value of commercial sites (not
  entire capital value) – no further detail is provided; and
• the Green Party would implement a Land Value Tax (LVT) for all
  commercial and residential property payable regardless of whether the
  owner is an occupier. The LVT would replace council tax, business
  rates, SDLT, annual tax on enveloped dwellings (ATED) and corporation
  tax / capital gains tax / income tax and inheritance tax on land and
  be charged annually as a proportion of the capital value, with
  deferral available for pensioners and those on low incomes until
  transfer or sale. The anticipated rate is suggested to be around 1.4%
  of current land values.

Q4: What about the knowledge and digital economies and the challenges of cross-border taxation?

The Conservatives remain committed to implementing their existing Digital Services Tax, whilst the Liberal Democrats think the Digital Sales Tax (the same thing?) needs improvement to ensure that tech giants pay their fair share. The Lib Dems would go further by also seeking to reform existing place of establishment rules to prevent multinational businesses moving profits offshore. How this interacts with a number of the other Liberal Democrat proposals, and indeed the OECD’s ongoing work on a unified approach to the tax challenges of the digital economy as part of BEPS 2.0, remains unclear.

Labour make a notable but very vague promise to treat corporate groups under common ownership as unitary enterprises so that profits are declared where economic activity occurs and where value is created. How exactly a UK Government of any stripe would achieve this unilaterally is not explored, but Labour (like the Lib Dems) would support the OECD’s BEPS 2.0 agenda.

The parties have varying attitudes to research and development tax credits: the Conservatives would increase the rate to 13% and extend to investments in cloud computing and data, the Liberal Democrats would retain the existing rate but extend availability in the same way and Labour would phase out credits entirely for large companies whilst also removing the patent box.

Q5: What do the parties say on VAT?

For the Conservatives, no increase to the rate of VAT is part of the effective tax lock, whilst Labour commits to no increase in the headline rate of VAT (but would charge VAT on private school fees).

As Brexit will leave a UK Government with much greater freedom with respect to VAT, this is an area which now generally lends itself to pet policies: in addition to Labour’s private school fees move, the Tories and Liberal Democrats will remove VAT on sanitary products, the Lib Dems will refund VAT costs to further education colleges and the Brexit Party will cut VAT on domestic fuel.

Q6: What approach do the parties take on tax avoidance and transparency?

As in 2017, in 2019 Labour puts tax avoidance front and centre, with far greater emphasis on anti-avoidance measures and transparency than any other party. The manifesto and related documents commit to implementation of the most comprehensive tax transparency and anti-avoidance programme ever enacted by a British Government, with a view to changing the culture around taxation. One might be forgiven for thinking that the onslaught of existing anti-avoidance measures enacted during the previous nine years (both administrative and technical) had not happened. And safeguards for taxpayers in those existing measures (such as the GAAR Advisory Panel and Advance Pricing Agreements) are themselves dismissed as either obstacles to their application or avoidance measures themselves.

The details will no doubt fill many standalone articles, but some of the standout points are:

• establish a General Anti-Avoidance Rule based on the New Zealand
  model (replacing the current General Anti-Abuse Rule);
• Review UK double tax treaties via an expert working group to
  establish how these facilitate tax avoidance in the UK and by UK
  companies elsewhere (in the Global South);
• Review existing Advance Thin Capitalisation Agreements (ATCAs) which
  are often used by companies to avoid taxation with the express aim
  of drastically reducing the number of ATCAs;
• Establish an intelligence-led task force to make recommendations
  about consolidating HMRC more centrally within Government;
• Create a public register of trusts and expand the existing register
  of company beneficial ownership to include all shareholders (not just
  those over 25%) as well as working with Overseas Territories and
  Crown Dependencies to implement public registers of beneficial
  ownership;
• Require the tax returns of large companies and individuals earning
  over £1m to be filed publicly;
• Ensure that companies tendering for public contracts must disclose
  beneficial owners and are blocked from such tenders if they fail to
  pay their fair share of tax;
• List and sanction abusive tax havens;
• Launch a public enquiry into tax avoidance and evasion, with a
  particular focus on offshore trusts;
• Clamp down on enablers of avoidance as well as evasion (including a
  review of how legal professional privilege applies to tax advice);
• Extend statutory time limits for investigation of offshore
  transactions;
• Close the Eurobond loophole, i.e. removing the International Stock
  Exchange (formerly the Channel Islands Stock Exchange) from the list
  of recognised stock exchanges – as published, the proposal does not
  seem to imply a broader review of the quoted Eurobond exemption; and
• Fully restore HMRC’s preferred creditor status.

The Liberal Democrats agree that a General Anti-Avoidance Rule should be introduced, and would also add resource for extra HMRC staff to meet targets for reducing the tax gap.

Somewhat more vaguely, the Green Party promises to entrench the anti-avoidance principle in UK tax law and introduce an obligation on banks to automatically provide information about companies to HMRC (perhaps inspired by the success of the US FATCA regime, which outsources reporting to financial institutions).

Even the Conservatives seem to feel that the public expects action in this area (always more difficult for an incumbent party), promising a new anti-tax avoidance and evasion law, a new and more muscular anti-tax evasion unit within HMRC, consolidation of anti-evasion and avoidance measures and a new package of anti-evasion measures. However, the tone here is more focused on evasion and less on avoidance.

Q7: Which other policies will capture public attention?

The manifestos bulge with tax stocking fillers the parties hope will capture the attention of voters and help drive them to the polls in festive season:

• Conservatives: devolution of corporation tax powers to Northern
  Ireland; 3% stamp duty land tax surcharge on non-UK resident buyers
  (no further detail provided); increase in the rate of the structures
  and buildings allowance from 2% to 3%;
• Labour: annual levy on second homes used as holiday homes (rather
  than for employment); reversal of previous inheritance tax cuts;
  reverse 2015 cuts to Bank Levy; introduce a climate change inspired
  windfall tax on oil companies;
• Liberal Democrats: end of retrospective changes such as the loan
  charge; stamp duty land tax surcharge on overseas residents
  purchasing second homes; allowing local authorities to increase
  council tax by up to 500% for second homes; reformation of access to
  cannabis through regulation and with the imposition of a cannabis
  levy
• Green Party: replacement of income tax threshold with universal basic
  income; establishment of HMRC as an agency independent of Government
  and answerable to Parliament; extension of stamp duty on shares to
  fresh issues of shares and abolition of the de minimis threshold for
  transfers; reinstatement in some form of a repayable imputation
  credit for pension schemes in receipt of dividends from UK companies; and
• Brexit Party: abolition of inheritance tax; reduction of import
  tariffs.

Q8: Do any overall themes emerge from the manifestos in relation to tax?

What is noticeable is both the extent to which the policies of Labour, the Liberal Democrats and the Green Party overlap in certain areas (most obviously in relation to the alignment of income tax and capital gains tax and their proposals for a land value tax), but also how distinct this cluster is from the Conservative policy platform. In the area of tax policy, it is easy to see how a left-of-centre coalition platform might emerge in a hung Parliament, and even if the polling suggesting a Conservative majority is correct, the reader is left with the impression that the Overton window universe of mainstream tax policy in these areas may be moving. As a result, we may see some of these ideas ultimately influence the tax policies of future Governments of whichever colour.