Tax Issues in the 2010 Election Manifestos

By: Nektaria Stamouli
23-Apr-2010

May 6, 2010 will see the United Kingdom go to the polls, and the main Political Parties have now announced their manifestos. The key factor in this election will be the question of which Party is better placed to manage an economy in the worst recession since World War II.  Tax is one of the most crucial aspects, since it affects the everyday life of all UK citizens.

Labour: Stable rate of Income Tax

Prime Minister Gordon Brown unveiled his Party's election manifesto hoping it will help them get back on track in the opinion polls. He promised not to raise the basic rate of income tax, though the manifesto did not say the same of Value Added Tax (VAT), a levy on goods and services. According to the latest Budget, revealed on the 24nd March, tax-free ISA allowances will increase annually with inflation, encouraging more people to save.

As the manifesto indicates, Labour aims to make it easier for those aged over 60 to receive Working Tax Credit, by reducing the minimum number of hours that you need to work in order to be eligible. At the same time, they plan to reduce tax relief on pensions contributions for people with higher incomes. Specifically, those with incomes above 18,000 pounds will receive basic rate tax relief. Furthermore, the Budget outlined an additional annual payment from the Government into the Child Trust Funds of disabled and severely disabled children of 100 and 200 pounds respectively.

Conservative: Tax Simplification and scrutiny

As for the Conservative Party, they plan to cut spending on Child Trust Funds for all but the poorest third of families and families with disabled children. Moreover, they intend to stop tax credits to families with incomes over 50,000 pounds. Also they proposed to raise the Inheritance tax threshold to 1 million pounds.

On the other hand, the Conservative manifesto says they will cut corporation tax, beginning with cutting the headline rate of corporation tax to 25p or lowering the small companies�¢�?�? rate to 20p, with these rate cuts to be funded by reducing complex reliefs and allowances.

In the Conservative�¢�?�?s first Budget, they would set out a five-year road map for the direction of corporate tax reform, providing greater certainty and stability to businesses. A Conservative government aims to publish all technical changes to the tax system by the Pre-Budget Report in advance of each Budget for consultation and proper Parliamentary scrutiny. In addition, there are plans to create an independent Office of Tax Simplification to suggest simplifications to the existing tax system.

The manifesto does not regard the new 50p tax rate as a permanent feature of the tax system; however, they could not consider abolishing it for the rich, whilst at the same time asking many of the UK�¢�?�?s public sector workers to accept a pay freeze.

They would aim to help Britain�¢�?�?s families by freezing council tax for two years, working in partnership with local councils. It is intended that marriage and civil partnerships are to be recognized in the tax system in the next Parliament.

Liberal Democrat: Rebalancing the Tax system

The Liberal Democrats have set out their stall as being more honest about the scale of the cuts that are necessary. Economics spokesman Vince Cable complained that two other main parties were not addressing the seriousness of the deficit in their manifestos.

As their manifesto indicates, they will restrict tax relief on all pensions contributions to the basic rate. They plan to �¢�?�?rebalance�¢�?�? the tax system, by cutting taxes for people on low and middle incomes. This would be paid for by cutting reliefs and closing the tax loopholes that benefit only the wealthiest in society.

They propose to raise the threshold at which people start paying income tax from current levels to 10,000 pounds, cutting the average working person�¢�?�?s income tax bill by 700 pounds and cutting pensioner�¢�?�?s income tax bills by 100 pounds.

A Liberal Democrat government would aim to align capital gains to income tax rates to prevent people from having an incentive to present their income as capital to pay a lower rate of taxation. They propose to reduce the annual exemption of capital gains tax, from 10,000 to 2,000 pounds to stop this allowance being used for tax planning. Furthermore, they intend to introduce a small levy on the value of properties over a threshold of one million pounds.

The manifesto proposes the replacement of air passenger duty with a per-plane tax, providing an incentive for airlines to fill seats and discourage them from running empty flights. In addition to that, they plan to introduce a levy on domestic flights to discourage travelers from choosing air travel over land for journeys which would take less than six hours by rail.

The Liberal Democrats intend to focus greater levels of HM Revenue&Customs (HMRC) staff time on eliminating Income Tax evasion. They aim to introduce a new general anti-avoidance provision for corporate tax, to stop companies structuring their businesses in a particular way to reduce their tax bill.They say it is crucial to ensure wealthy individuals and businesses cannot avoid paying Stamp Duty Land Tax by setting up an offshore business structure.

More or less, the Liberal Democrats believe that council tax should be scrapped and replaced with a fair local tax, based on peopleÃ?¢Ã??Ã??s ability to pay. For this purpose, a fair local income tax would be piloted in certain areas of the UK.