The Conservative Party leadership contest has now whittled down the contenders to the last two. One of them will be Prime Minister by the end of July. With the Conservatives holding themselves out as the party of low taxes, what are these two rivals proposing?
Boris Johnson’s tax pledges have been well publicised. He proposes an increase in the higher rate threshold from £50,000 to £80,000. This means that instead of paying 40 per cent tax when your income reaches £50,000, you would pay tax at 20 per cent on income up to £80,000, and only beyond that point would the 40 per cent tax rate apply. Therefore, if you currently earn £80,000, you would have £6,000 more per annum to spend. It is notable that these changes would not apply to earned, pensions and property income of Scottish taxpayers as the devolved government sets its own rates of income tax for such income.
On the other hand, Jeremy Hunt has focussed on corporation tax. His suggestion is that the corporation tax rate should be cut to 12.5 per cent. Currently corporation tax is 19 per cent and will reduce to 17 per cent from April next year.
Mr Johnson has estimated the costs of his plan at £10bn and the Government has estimated the costs of reducing corporation tax to be around £14bn.
Neither candidate has provided any more details about their proposals. The key point is that both intend to cut taxes at a cost of at least £10bn to the Exchequer. In other words, both candidates embrace the general Conservative Party approach of reducing taxes, albeit they would achieve this in different ways.
In contrast, the 2017 Labour Party manifesto pledged to raise more tax by charging income tax at 45 per cent on income over £80,000 and re-introducing a 50 per cent tax rate for income exceeding £123,000. That manifesto also pledged to raise an additional £19.4bn from corporation tax. More recently, the Labour Party has published proposals for discussion in advance of the next general election. The document proposes radical changes to various taxes but with one unifying theme: that taxes raised from both individuals and companies would go up.
Therefore, under a future Labour government, it is likely that some individuals and most companies would pay more tax. The future Conservative Prime Minister, however, will seek to cut taxes payable by individuals and/or companies.
A clear choice?
For any voter choosing between Labour and Conservative candidates at the next general election, the choice has become more polarised than it has been for years. Whilst it remains to be seen if any of the other parties can gain traction in these unusual times, and how their policies may differ, we really do seem to be returning to a choice between larger state sector ‘tax and spend’ versus smaller state cutting taxes and spending less, and it will be interesting to see which approach captures the public imagination better.
For more information please get in touch with Rachel de Souza.