This is the fifth of a short series of blog articles looking at what we know about the direction of tax policy following this year’s political party conference season. The CIOT is strictly politically neutral and nothing in this article should be interpreted as endorsement for or opposition to any of the policies mentioned.
Labour are still having to work hard to try to reassure multinationals and investors that they are not anti-big business. A year ago Labour announced new policy of an energy price freeze and measures to promote small business over big business. At the time Shadow Chancellor Ed Balls assured business leaders that this was not the start of a wider offensive. However initiatives since then attacking big banks, betting shops, payday lenders (who would face a levy, the proceeds of which would be used to build up their credit union rivals), and exploitative private sector landlords have led some to disagree. To quote the FT: “Mr Miliband insists he is pro-business but his prescriptions of energy price freezes, bank dismemberment, land seizures, rent controls and increases in the minimum wage have convinced many corporate leaders otherwise.”
The bad news for businesses, especially those in the finance sector, continued to come during Labour’s 2014 conference. While half of the funding for Labour’s £2.5 billion fund for the NHS would come from a mansion tax the rest would be raised from levies on business: a new tax on tobacco firms’ profits, action against “umbrella companies” used to employ temporary workers to avoid tax and NI, removing a stamp duty exemption currently available to hedge funds and closing the “quoted eurobond exemption” which allows some businesses to channel tax-free interest out of the UK. Previously announced policies to increase the bank levy, repeat the tax on bank bonuses and reintroduce stamp duty reserve tax were reaffirmed.
A year ago a key Labour announcement was that the party would reverse the cut in corporation tax from 21 per cent to 20 per cent due to take effect in April 2015, and use the money to cut business rates for 1.5 million small businesses. This was reaffirmed in Manchester. However in what might be seen as a move to reassure multinationals and investors on competitiveness, Ed Balls stated that the party would nonetheless keep Britain’s corporation tax rates at the lowest in the G7. Other parts of Labour’s offer to business include strengthening the British Investment Bank and warning of the risks of the Conservatives’ flirting with exit from the European Union.
None of this, of course, prevents the Conservatives presenting Labour as anti-business, alongside parading their own tax-cutting credentials. “We have cut more in business taxes in this parliament than in any other parliament over the course of our history” was the triumphant message delivered to the CIOT/IFS conference fringe debate by David Gauke MP, Financial Secretary to the Treasury. As well as the cut in the headline rate of corporation tax he cited the introduction of the patent box and the employment allowance as measures particularly helping business. The final day of the Conservative conference saw David Cameron make a similar case, describing his Government’s approach as “rolling out the red carpet” for inward investors and making the (potentially very brave, should others follow suit) commitment that, under the Conservatives, the UK “will always have the most competitive corporate taxes in the G20… lower than Germany, lower than Japan, lower than the United States”.
Despite having the Business Secretary, the Lib Dems tend to be somewhat bashful about taking credit for business tax changes, preferring to focus on income tax cuts, investment in infrastructure and apprenticeships, and cracking down on avoidance. Vince Cable is also keen on drawing attention to the Government’s sector-based industrial strategy, which gives the state a role in building business confidence, creating certainty around regulation, promoting competition, sponsoring research and protecting consumers, workers and the environment. In his keynote speech to the conference Cable described the Government’s industrial strategy as “a public-private partnership, writ large.”
Lib Dems share Labour’s keenness to be seen to be backing small business over big. The party’s pre-manifesto promises to “Continue to reform business tax to ensure it stays competitive, making small and medium-sized enterprises the priority for any business tax cuts”. There is a pledge to review business rates in England, which are described as “a disproportionate burden on smaller businesses”. The review will cover the option of moving to Site Value Rating within five years, and in the longer term Land Value Taxation more broadly. During the conference Vince Cable revealed that there is likely to be an announcement in the Autumn Statement that small companies looking to expand into improved premises will be given relief on their business rates.
In June Labour published a business tax policy document: ‘Delivering Long-term Prosperity - Reform of Business Taxation’. The paper continues Labour’s interest in how government can promote long-termism in investment; this was one of four principles in the June paper. The party believes that the growth of cutting-edge companies has been hampered by systemic pressures that force too many businesses to focus on the short term. In a speech in June Ed Balls said that Labour was examining the case for an Allowance for Corporate Equity (ACE), along the lines suggested in the Mirrlees Review, to redress the systemic bias in favour of debt finance. As well as looking at ACE the policy document advocates exploring structural tax changes to incentivise long-term investment (eg taper CGT on shares and income tax on dividends), as recommended by Sir George Cox in the report he produced for the party last year.
Other domestic business tax reforms set out in the June policy document are guided by the principles of support for enterprise and innovation, simplicity and predictability, and a commitment to fairness. Reforms being proposed include:
• Support for tax simplification, and a considered and clearly signposted approach to tax reform, including considering establishing the Office of Tax Simplification as a truly independent body, outside the framework of the Treasury;
• Drawing up a roadmap for capital allowances, which will assess the allowances available on plant and machinery in the UK against those offered by competitor countries and show what allowances will be available over the lifetime of the next Parliament and at what rates;
• Looking into improved targeting of research and development tax credits (in particular, to maximise impact, rewarding “genuine contributions to national research capacity, rather than activities that are outsourced overseas”);
• Tackle dormant companies – Labour will require the annual confirmation of dormancy and explore the possibility of banks automatically informing HMRC when there is activity in supposedly-dormant accounts;
• Combat disguised employment in the construction industry - proposals to deem construction workers as employed for tax purposes if they meet criteria which most people would regard as obvious signs of employment;
• Ensure HMRC has the right resources, expertise and specialists, especially in investigation, enforcement, compliance and anti avoidance units;
• Strengthen NAO powers to scrutinise tax reliefs, particularly where they are abused to avoid tax.
Proposed international tax reforms will be covered in the next post in this series.
Labour have also said that they would give (as yet unidentified) tax breaks to firms that pay the living wage and end the exploitative use of zero-hours contracts. By the end of the next parliament, Labour would increase the national minimum wage to £8 an hour.
CIOT Head of External Relations
Wedneday 12 November 2014