The latest twist in the election campaign sees the Tories and Labour making pledges around taxes. We’re currently experiencing some of the highest taxation in decades, so what moves will the parties make?
Hunt Rules Out VAT Rises
Jeremy Hunt said that if the Tories win the upcoming election, they’ll pledge not to raise the VAT rate (currently 20%). He then pressured Labour to make the same promise.
Reeves Responds
Shadow Chancellor Rachel Reeves accepted the challenge, saying she wouldn’t raise VAT if Labour won power. She described reports claiming Labour planned a rise in VAT as “nonsense”.
VAT Not Applicable to Everything
Unlike other taxes, value-added tax (VAT) is not applied across the board. Many foods, children’s clothes, and medicines are exempt from VAT. A lower rate of VAT (5%) is charged on other products.
Public Finances Perilous
The issue with ruling out tax rises is that the public purse needs refilling. The Institute for Fiscal Studies (IFS) said that the public finances hang over the election “like a dark cloud”.
Public Finances Need to Repair
The National Debt is almost 100% of GDP—some of the highest peacetime debt in our history. To repair this, we need either significant economic growth or tax hikes.
Labour Plan to Close Loopholes
The Labour plan is to add VAT to public school fees, close tax loopholes, and impose a windfall tax on energy companies. The taxes are all aimed at the super-rich, which is proving popular with voters.
Reeves Wants to Change Tax Thresholds
The Shadow Chancellor Rachel Reeves said: “I want to bring taxes down and I want those tax thresholds to go up so people are not paying so much tax on their income but unlike the Conservatives I’m not going to make a promise and a pledge without being able to say where the money is going to come from because that is just a gimmick.”
Tax Reduction for Working People
She continued: “I want to bring taxes down for working people and for pensioners as well but I will do that in a costed and a funded way and I will do that through growing the economy because that is something the Conservatives haven’t been able to do these last few years.”
Tory Tax Plans Less Clear
So far, all the Conservatives have offered regarding taxes is a promise that they won’t go up. Beyond that, there are no proposals on how to fix the public finances.
Worrying for a Party Who Have Had 14 Years
The lack of clarity on Tory’s tax policy is a concern close to the election. They called it on; they’ve had 14 years in power and are the only ones without clear guidance on what they intend to do.
Tory Tax Policy ‘Cut’
At any given opportunity, Jeremy Hunt promises tax cuts and giveaways, but he doesn’t answer the other huge question—how he intends to fund these tax cuts and what his plan for the economy looks like.
Lib Dems Targeting Certain Sectors
The Lib Dems said they would raise money by targeting banks, tech firms and energy companies, saying: “They have benefited from problems in the economy and society and should be paying their fair share.”
Fixing Public Finances Without Tax Rises
That leaves the Tories with one of two options: either cut public spending (what’s left to cut, but the way?!) or grow the economy. There’s no clear plan in place for growth, either.
Growth Forecasts “Optimistic”
Paul Johnson, director of the Institute for Fiscal Studies, says the incoming Chancellor will face a very difficult challenge. He also said the forecasts the government relied on this year now appear “optimistic.”
Still, Parties Are Insistent
Chancellor Jeremy Hunt reaffirms that the government will not increase taxes despite the “challenging” public finances. He describes the promise as “an important commitment.”
Labour Also Double Down on Promise
Labour’s shadow chief secretary to the treasury, Darren Jones, said: “We’ve been consistent in saying we have no plans to increase taxes on working people because it’s the highest it has been for 70 years”.
Urgent Need to Address Finances
Whoever wins power, the economy has to be top of the agenda. The national debt can’t be allowed to spiral because interest payments will stifle the ability to invest in public services, and that can’t happen.
Growth Has to Be a Key
The economy has flatlined for a long time, and the government needs to prioritise economic growth. A growing economy affords more public spending and a reduction in the debt pile.
Taxes Likely to Stay Static for Now
Given the major parties’ huge emphasis on maintaining and even reducing taxes, expect them to remain static for a while. We should see the implementation of growth plans early on in the new parliament, so they should begin to bear fruit in a year.
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