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Shadow Business Secretary John Denham MP has told the CIOT that Labour is looking at ways of using the tax system to greater reward the holding of long-term investment by businesses.

At an economic briefing held yesterday as part of the Labour Conference, George Crozier, CIOT External Relations Manager, asked Mr Denham whether media reports around Ed Miliband’s speech the previous day were accurate. These stated that Labour proposed to tax businesses differently according to how they make their money with, for example, asset strippers facing higher tax rates. If this was the case, could he explain how they proposed to do this?

In his speech, Mr Miliband had drawn a distinction between what he called ‘producers’ and ‘predators’. As an example of the latter he highlighted what a private equity firm did to the Southern Cross care homes, which he described as “stripping assets for a quick buck and treating tens of thousands of elderly people like commodities to be bought and sold”. He said government should no longer be neutral in the battle between producers and predators and should tax and regulate them differently, as well as treating them differently for government procurement purposes.

Responding to the CIOT’s questions, John Denham responded that some of the media coverage had been erroneous, in particular the suggestion that government would be going round ‘after the event’ drawing up lists of good and bad companies. He said that even the combined wisdom of all the CIOT’s members could not design a tax system to do this.

But as an example of what Labour wanted to do he said the tax regime should be changed to reward long-term holding of capital more. The Government should set rewards at the start of the process to reward the holding of long-term investments.

While further details have not been provided, this suggests Labour may be looking at reforms to areas such as entrepreneurs’ relief (ER), and the substantial shareholdings exemption (SSE), which allows a company to buy and sell shareholdings in another company at a profit without paying tax on that profit. The current qualifying period for both ER and the SSE is 12 months. Potentially this could be increased or some kind of taper introduced to reward the holding of shares by individuals or companies for a longer period.

Ed Miliband’s speech can be read here. The relevant passage is about two thirds of the way through.

George Crozier
CIOT External Relations Manager
Thursday 29 September 2011

NB. George will be producing short reports from all three of the main UK party conferences. The Lib Dem report can be read here. The Labour report will be posted shortly and the Conservative report in about a week’s time.

A brief report on tax debate and announcements at the 2011 Liberal Democrat Conference

For the second year in a row, Danny Alexander, Chief Secretary to the Treasury, used Liberal Democrat conference to make a substantial announcement on tax compliance. Last year it was the announcement of a £900 million fund to tackle evasion and avoidance. This year it was the news that HMRC are to recruit 900 new personnel to focus on the rich. They will be part of a 2,250-strong unit handling new anti-evasion and avoidance work. Alexander said the team would focus on the financial affairs of 350,000 of the best-paid people in the country. There has been some media criticism over the fact that most or all of this unit will be reallocations of existing HMRC staff.

On the bigger picture of tax rates, there was plenty of debate at the conference on the 50p income tax rate and a shift of taxes from income and jobs to wealth and property. Party leader Nick Clegg said that "there is no way" he would allow the Conservatives to unilaterally drop the 50p rate until allowances for the lowest paid were raised further. The party’s deputy leader, Simon Hughes, proposed a “mansion tax” specifically for non-domiciled UK residents.

Business Secretary Vince Cable also argued against tax cuts for the wealthy. In his keynote speech, Cable charged politicians on both left and right with “believ[ing] government is Father Christmas... [and that] if taxes on the wealthy are cut, new revenue will miraculously appear.” “Pull the other one!” was his response. He also defended his proposal for a ‘mansion tax’.

In his leader’s speech, Nick Clegg highlighted the increase in the income tax personal allowance, which is promised to reach £10,000 by the end of the Parliament. This policy topped a conference survey of what Liberal Democrat activists felt was their proudest achievement in government. Building on this, Danny Alexander said that the Lib Dems should fight the next general election on a policy of raising the income tax personal allowance to £12,500.

The Conference passed a paper outlining the strategic direction for the party’s policy development up until the 2015 General Election. The paper proposes to develop the party’s thinking on tax, especially looking at wealth taxes, land taxes, green taxation and localisation of revenue raising. Consequently a new Lib Dem tax policy working group is expected to be set up shortly, leading to a policy paper scheduled to be debated at the autumn 2013 conference.

A consultation session on local government taxation discussed proposals that local authorities be funded through a tax on undeveloped land value (rates set by councils), a hypothecated share of IT/NI receipts (based on both residence and location of employment) and other taxes they would be allowed to impose. This is likely to lead to a policy paper, probably to be debated at the autumn 2012 conference.

The conference approved a motion that allows for a windfall tax on operators of existing nuclear power stations. The proceeds will be used to help consumers, especially those in low-income households, adapt to higher energy prices.

Finally, regeneration minister, Andrew Stunell MP, announced that property owners who leave their homes empty for more than two years could be hit with a tax hike to "nudge" them into bringing the buildings back to use quickly. The government is due to launch a consultation on the empty homes premium, a discretionary measure that would enable town halls to charge extra council tax on properties lying abandoned in an attempt to make better use of local housing stock, shortly.

George Crozier
CIOT External Relations Manager
Monday 26 September 2011

NB. George will be producing short reports from all three of the main UK party conferences