With the UK general election on Thursday, in this article, Lisa Wilson – Partner and Head of Tax at Cowgills has shared some of her thoughts regarding tax policy, what might be in store for the future and how it might feed into the wider UK economy.

What are the major parties proposing?

Labour

The known tax hikes which will be introduced by Labour should they be successful on 4^th July have already been announced. These include VAT for private schools, an increase in the windfall tax on oil and gas companies and an amendment to the current tax benefits enjoyed by non-dom individuals.

Labour have ruled out tax increases in income tax, NIC and VAT.

Regarding capital gains tax (CGT), the fact that they have not ruled out an increase, there is an expectation that this tax might be targeted. This would be an easier ask of the voting public, as it is a tax which doesn’t usually hit ‘hard working families’ or those struggling with the cost of living crisis.

It does tend to hit business owners though!

In order to woo business – I suspect it will be unlikely that Labour will look to increase the rate of corporation tax (CT) – which has only recently increased to 25%.

A potentially softer target would be to look at the taxes that private equity investors pay as returns are usually taxed as capital and not income which is widely seen as a tax advantage to the wealthy.

Conservatives

They have announced they would look to increase the personal tax thresholds of pensioners – whilst freezing everyone else’s – which very much plays into the hands of their typical voter profile.

Jeremy Hunt has also promised a ‘family home tax guarantee’ which states there will be no tax hikes in stamp duty and council tax.

Generally they have stated that if inflation continues to drop they will look at ‘lowering taxes’ but have not yet been very specific about what these might be.

What would businesses prefer to see?

This is a really easy answer – for my OMB clients they would like to see some consistency.

Instead of treating tax as a vote winning bribery mechanism, where each political party panders to their likely source of votes – it would be better for the UK economy if there was a more longer-term tax strategy.

The focus for business being on how the UK can improve productivity and consequently, improve profitability and ultimately wages. This can only come from a huge investment in the government regarding a better use and understanding of how tech and innovation can assist.

The current UK government previously pledged to invest more in R&D and help business, especially entrepreneurial businesses get finance to expand, in Jan 23. However, without any meaningful funding or specific policies regarding how this could actually be achieved it fell by the wayside.

Coordinating skills training in entrepreneurial businesses and giving better and more targeted tax breaks instead of the much criticised apprenticeship levy, would be helpful.

Any future government should look further than the next 5 year term and implement a more longer range tax policy strategy, preferably with cross party agreement, which ensures it gets delivered irrespective of who is in power – this would stop the bias in how funding is applied and genuinely contribute to improving the UK economy.

Looking back

After 14 years in power, the conservatives should, in that time, have been able to conclude on more medium to long range tax policies but have failed miserably.

Yes, it can be argued that Covid and the £360bn hole it put in the UK reserves are partly responsible. However, when government consistently fail to deliver big infrastructure projects, on time and on budget, business and investors lose confidence.

This has been seen on the failure to commit to building houses – which impacts on the constructions sector (and all the ancillary sectors that feed into property and construction); engineering projects – such as the debacle that was HS2; and the failure to build the 40 new hospitals and schools that were promised.

Given these failures there will be less motivation and confidence from business and investors to trust the Government and partner with it on these necessary improvements to UK infrastructure.

It is impossible to speak about business and not recognise that the education system is not preparing young people for work. The yo- yoing of ‘university should be for everyone’, to making it so expensive that young people are coming out of education saddled with debt and not ‘work ready’.

With Brexit and the impending restrictions on working visas there is no clear strategy regarding where the workforce for some sectors will materialise from – especially social care and the healthcare system which is losing unskilled workers due to low wages and highly skilled workforce to overseas territories such as Canada and Australia who pay significantly more remuneration.

Final thoughts

It is difficult to see, given the above, how either party can make promises on tax and spending without an honest assessment of the failure of the UK economy to innovate and improve; and how over the longer term the Government can reverse decades long declines in prosperity, productivity and efficiency.

If you have any questions on anything that has been raised in this article, please don’t hesitate to get in touch with our expert team today.