With 18 months to the election the starting gun has already been fired on outlining the different parties’ policies on tax.
As often happens the first casualty has been consensus on tax. Until the Labour party conference it had been assumed that all sides supported the reduction in corporation tax to 20% by April 2015. Ed Millibands’ pledge to reverse the final cut would seem to usher in a period of uncertainty regarding CT rates.
The pledge to freeze business rates for small businesses may well be matched by the Conservatives in future budgets.
It is also not clear whether the 45p rate of tax would increase to 50p if Labour won the next election. Although Labour had fiercely opposed the “tax cut for millionaires”, they have been very cagey about whether they would actually revert back to the 50p rate of tax. The first self-assessment deadline covering the 45p rate occurs on 31st January 2015. Expect there to be considerable attention as to whether the tax take increases in the first year of the 45p rate.
The Conservative Party Conference unveiled both the limited return of the Married Couples Allowance (MCA) and the pledge to create a surplus in the National Budget Accounts by 2020. The problem with the MCA is that it will create an even greater cliff effect on higher rate taxpayers when combined with the withdrawal of child benefit. The commitment to a budget surplus would on the face of it seem to rule out further substantial tax cuts until 2020 but it is likely that Osborne is banking on the recovery closing most of the gap in the Public finances.
The final area politically concerns the position of the Lib Dems as the potential Coalition partners after the next election. The action to close the deficit that was agreed in 2010 was 80% covered by Public spending cuts and 20% through tax rises. The tax rises were quickly enacted (such as the VAT and stamp duty rises). The public spending cuts were phased in over a much longer period and represent most of the further fiscal tightening up until 2018. It will be interesting to see whether the next government keeps to the same spending plans or looks to close the gap through further tax rises.
