23 July 2020 - Events
With the election campaign now in full swing, it’s time to direct some scrutiny towards the different parties’ tax proposals. What can we expect if Boris Johnson lives up to his reputation as a masterful campaigner and leads the Conservatives into winning an outright majority? Will we have more of the Theresa May and Phillip Hammond ‘steady as she goes’ approach of the past few years, or should we expect a bit of a shake-up?
It will come as no surprise that the big theme of Tory messaging over the past few months has been about lowering the tax burden – and not just for those at the bottom end of the scale. During his campaign to become Tory leader, Johnson promised to increase the higher rate of income tax threshold from the current £50,000 to an attractive £80,000. That represents a substantial change and would undoubtedly be a welcome gift to existing higher rate taxpayers.
Johnson also mooted the idea of bringing the top rate of stamp duty land tax (SDLT) down to 7%. With the highest rate currently an eye-watering 15%, a new top rate of 7% is likely to prove more palatable (although the level at which the new rate would kick in remains unclear). But his proposals didn’t only target those able to afford properties at the pricier end of the market. He has also floated the idea of raising the SDLT threshold to £500,000. As well as leading to further savings for buyers of more expensive properties, such a change would sweep the majority of UK property purchases out of the scope of the tax altogether.
The Chancellor, Sajid Javid, himself a professed ‘low-tax guy’, has been considering a bit of a tax shake-up too. While refusing to be drawn far on the detail, he has stated publicly that inheritance tax is on his mind. Speaking to an audience at the Conservative Party conference, with both eyes very firmly on middle England, he said he recognised the arguments levelled against the tax, noting that he sees a real issue with imposing a tax on wealth already subject to charges during an individual’s lifetime. If one accepts that changes to inheritance tax will be within the sights of any new government, Mr Javid’s statement is clearly less extreme than the starkly contrasting inheritance tax policy proposals of Labour and the Lib Dems, both of which support scrapping the tax altogether in favour of a progressive lifetime gift tax. However, the Conservative stance does not necessarily rule out material changes to inheritance tax; it simply shows that such changes may follow a different course to that of the other parties.
When it comes to business, Johnson has tried to row back from his now infamous remark, promising during his leadership campaign to be the most ‘pro-business’ Prime Minister in history. He has shown sympathy for a digital services tax on internet giants such as Facebook and Amazon. At a York hustings on the leadership campaign, he highlighted the disparity between the tax paid by high street business and international digital companies. Whether a future Conservative administration finds a way to extract revenue from these giants remains to be seen. But if it is anything like the new French digital services tax, such a proposal is likely to put serious strain on trans-Atlantic relations at an awkward time for the UK.
With all these potential tax breaks to look forward to, you might think the government plans to tighten its belt. This doesn’t appear to be so. Johnson’s spending pledges appear to have outpaced his tax promises. To do both, he is likely going to have to increase borrowing.
When the Conservative manifesto is published, which we expect towards the middle of this month, we hope to get a clearer sense of which of these crowd-pleasing promises are going to be kept and which scrapped. Labour have got the fight started with a predictable broadside on the wealthy. We will take an in-depth look at what they are planning next week and keep you updated with our analysis of the Conservatives’ response.
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