Tax Rebates & Refunds

The debating is over – what do the parties actually say?

April 30, 2010
Posted in Income Tax, Other Tax — Written by The Tax Repayment Agency

Last night saw the final live debate between the three main political party leaders. But what has each party actually said they are going to do with regard to tax – specifically income tax?

Accountants Smith & Williamson have taken a close look and produced this handy summary. If you’re still unsure who to vote for, take the time to read this, as reproduced in yesterdays Daily Telegraph.


1.1. Conservatives

Cut wasteful Whitehall spending rather than increase taxes.

Create the most competitive tax system in G20 within five years, restoring simplicity, stability and predictability. Set out a five year road map for corporate tax reform to provide greater certainty and stability for business. Introduce an Office of Tax Simplification to suggest reforms to the tax system.

Reduction in corporation tax rates to be funded by reductions in capital allowances and scrapping complex reliefs.

Pay freeze for one year for public sector workers other than the one million lowest paid.

1.2. Labour

Create an enterprise environment that gives active support to those who wish to start their own business.

Make further progress in cutting the costs of regulation on growing businesses, especially the smallest, with a new goal to cut the cost of regulation by a further £6.5 billion by 2015 (£1.5 billion in unnecessary paperwork and record-keeping, and £5 billion in the wider regulatory costs that impact upon business).

Take steps to cut the budget deficit with 60% of tax rises being paid for by the top 5 per cent of earners. Plan to halve the deficit in four years through fair tax increases, firm grip on public spending, strategies for growth and reduced spending on benefits.

Increase all NI rates by 1% from 6/4/11. Considered to be fairer than increasing VAT.

No increases in income tax rates in next Parliament and no extension of VAT to food, children’s clothes, books, newspapers and public transport fares. Will maintain tax credits.

Cap public sector pay rises at 1% for two years. Reforms to public sector pensions.

1.3. Liberal Democrats

Rebalance the tax system by cutting taxes for people on low and middle incomes, paid for by cutting reliefs and closing tax loopholes that benefit the wealthiest and increasing taxes on aviation.

Tackle tax avoidance and evasion.

Achieve £14 billion of potential savings including scrapping the Child Trust Fund, regional development agencies and various defence procurements. Set a pay rise cap of £400 for public sector workers for two years, restrict tax credits, end Government payments into child trust funds, and introduce a banking levy.


2.1. Conservatives

Charge a flat-rate levy on UK residents of foreign origin who are tax-domiciled offshore, to pay for increase in IHT nil rate band.

Abolish income tax on all savings income for everyone on the basic rate of tax with top rate taxpayers continuing to pay the same as they currently do.

Raise the tax allowance for pensioners by £2,000.

Transferable personal allowance for married couples which will only benefit basic rate taxpayers.

50% top rate to stay as long as the public sector pay freeze is operational.

Will restore tax reliefs previously available through the furnished holiday lettings regime.

2.2. Labour

No increases in the basic, higher or top rates of income tax in next Parliament. The new 50% top rate to remain in place for the whole term of the next Parliament.

Remove the furnished holiday lettings rules that treat such businesses as a trade rather than property businesses.

2.3. Liberal Democrats

Raise the threshold at which people start paying income tax from current levels to £10,000, cutting the average working age person’s income tax bill by £700 pa and cutting pensioners’ income tax bills by £100 pa. These plans will mean that almost four million people on low incomes would no longer have to pay any income tax at all. This proposal has been costed at £16.7 billion, to be paid for by reforming CGT, restricting tax relief on pension contributions, the mansion tax, switching from Air Passenger Duty to a per plane tax and anti-avoidance measures.

Close tax loopholes and cut reliefs that benefit the wealthiest.

Restrict tax relief on pension contributions to the basic rate, so that those on high incomes do not benefit disproportionately.

Reform the system of taxing non-domiciled individuals so that after seven years they will become subject to UK tax on all offshore income.


3.1. Conservatives

Any new business started in the first two years of a Conservative Government to pay no Employer National Insurance on the first ten employees it hired during its first year.

Would reduce the impact of the proposed 1% National Insurance rise in April 2011 by increasing the employee’s earnings threshold (before they start to pay National Insurance) by £24 per week and the upper earnings limit (after which the upper NI rate is due – currently 1% but 2% from April 2011) by £29 per week. The earnings threshold before employers’ contributions commence will also be increased by £21 per week. This is initially projected to cost £5.6 billion, falling to £4.3 billion as wages rise. [The PBR08 document indicated the 0.5% increase in NI rates would raise £5.39 billion in 2011/12, while PBR09 indicated the further 0.5% increase in NI rate would raise an additional £4.64 billion. Thus the Conservative’s latest position on the NI increase would reduce the revenue raised from this measure from just over £10 billion to £4.43 billion, to be funded by £12 billion a year efficiency saving measures to be implemented across Whitehall.]

3.2. Labour

All NIC rates to increase by 1% with effect from 6 April 2011.

3.3. Liberal Democrats

Combat leakage of National Insurance contributions by changing the taxation of benefits-in-kind, such as private health insurance, leading to a fairer basis of pay.

Reverse the proposed increase in NIC as soon as resources allow.

5. VAT

5.1. Introduction

None of the parties has a firm commitment on VAT policy. The view that VAT would be a strong contender for tax rises, whichever party wins the election, is partly based on data showing that Britain has one of the lowest VAT rates in Europe. Official documents have revealed that the Treasury considered announcing a VAT increase to 18.5 per cent in 2011-12 in the 2008 pre-Budget report (per FT 22 March 2010).

Policy Exchange, viewed as one of Tory leader David Cameron’s favourite think-tanks, said modelling and academic research showed the idea established in the 1970s and 1980s that VAT was less damaging than income tax was no longer valid. “We found that, contrary to what is widely assumed amongst journalists and politicians, increasing VAT would be more damaging to economic growth than increases in the basic rate of income tax,” the report concluded. This effect was so clear that politicians should consider restructuring taxes by raising the basic rate of income tax and cutting VAT, it said (per FT 22 March 2010).

5.2. Conservatives

5.3. Labour

No extension of VAT to food, children’s clothes, books, newspapers and public transport fares.

5.4. Liberal Democrats

Do not propose to raise VAT (Nick Clegg 8/4/10)

We hope that makes things a little clearer for you.

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