With the election campaign well underway clear dividing lines between the main parties are becoming apparent over tax.
It’s become something of an axiom that there’s barely a polling card between the major political parties on most issues. However, the common refrain that “they’re all the same” doesn’t bear scrutiny when it comes to tax.
Admittedly, the differences in some areas are fairly negligible, but survey the big picture and some of the old left-right ideological divisions become apparent.
They’re best encapsulated thusly: Labour thinks the Government should, and can, effectively, lend a hand to industries which struggle to compete globally or which are important strategically, or support businesses with strong environmental or social credentials, through targeted tax allowances, subsidies and tax breaks. It could point to the success of targeted interventions such as the car and boiler scrappage schemes as examples of successful government subsidies.
Given the monstrous public deficit, tax rises are inevitable whichever party comes into power, and business owners are rightly concerned about anything that might choke off the fragile recovery
The Tories prefer simpler, lower taxes across the board, believing that it’s not only wrong for the State to prop up ailing industries, but also that its interventions tend to be ill-judged.
Bureaucracy
The Conservatives believe the extra bureaucracy involved in targeted government support is generally not worth it; Labour tends not to acknowledge the profusion of red tape. The Lib Dems’ position, meanwhile, is less easy to summarise, perhaps best described as pragmatic.
As the election campaign heats up, tax (or, as the Telegraph puts it, ‘tax, tax, tax’, echoing Tony Blair’s (in)famous mantra about education). It was ever thus of course, but tax is a more sensitive issue than ever in the SME community.
Given the monstrous public deficit, tax rises are inevitable whichever party comes into power, and business owners are rightly concerned about anything that might choke off the fragile recovery.
Business owners are now wondering how much of the increased tax burden they’ll have to bear, and which tax rises or perks will be affected.
George Osbourne seized the initiative this week by deriding Labour’s decision to increase National Insurance Contributions (NIC) by 1%. The Shadow Chancellor’s stance was given added credence when a letter lambasting the move from 23 prominent business leaders was published in the Telegraph.
Labour says the Shadow Chancellor is being disingenuous when it says it can fund its own proposal, to cut NIC, through efficiency savings in the public sector. Outgoing M&S CEO Stuart Rose and Easy Group founder Sir Stelios Haji-Ioannou and other signatories to the Telegraph letter, said Lord Mandelson, were being misled as the cut would inevitably mean VAT would have to be increased.
The Tories are also promising to slash corporation tax from 28% to 25% and the small business rate from 21% to 20%. They’re also raise the threshold at which they start paying tax on staff wages to £21, which will please the hospitality, retail and other sectors with a large proportion of low-wage employees. The Lib Dems plan to simplify the corporation tax system, closing loopholes and cut the headline rate.
Flawed
The Conservatives say they’ll fund this raft of cuts by reducing the amount of money spent on subsidies and tax credits. This could well mean a reduction or an end to the annual investment allowance, which Labour doubled in the budget from £50,000 to £100,000.
Anita Monteith at the tax faculty of the Institute of Chartered Accountants in England and Wales believes that the policy is flawed. "Capital allowances are a reward for spending rather than an incentive to spend because you get them afterwards. If the aim is to encourage investment they don't do that,” she says.
