Tax at Labour Conference Autumn 2018
There wasn’t much new tax policy announced at Labour conference (a levy on holiday homes was an exception) but there were plenty of pointers towards some potentially radical ideas being under consideration. This is part of a series of reports on tax policy discussions at the main party conferences. Further reports will follow on the Conservative and SNP conferences, with a roundup of Lib Dem conference here.
Tax policy development
For the second year in a row there was not much talk about tax at the conference outside of the CIOT/IFS fringe debate (see below), and virtually no policy development in this area. The manifesto for the 2017 general election is still where it is at for Labour tax policy. Just to remind you, this included a corporation tax rate of 26 per cent (21 per cent for small profits) and higher rates of income tax for those earning more than £80,000 a year. High earners will also be targeted with an extra levy on ‘excessive pay’ and a proposal to publish the returns of those earning more than £1 million a year.
In his keynote speech to the conference, Shadow Chancellor John McDonnell said he was launching a ‘shareholder campaign’ to demand companies sign up to the Fair Tax Mark standards, ‘demonstrating transparently that they pay their fair share of taxes’. The Fair Tax Mark certification scheme was launched in February 2014 and ‘seeks to encourage and recognise organisations that pay the right amount of corporation tax at the right time and in the right place’, according to its website. McDonnell suggested one way to tackle tax avoidance is to “mobilise shareholder power to demand companies uphold basic tax justice standards. Numerous institutions from churches to trade unions and pension funds have large scale shareholdings in many of the companies that avoid taxes”, he said. He intends to bring these organisations together to launch a shareholder campaign, exerting ‘people power’ over the tax system.
This was the only specific proposal on tackling avoidance in McDonnell’s speech, but he did make the broader claim that the Conservatives’ record on tackling tax avoidance and money laundering had been a ‘disgrace’ as well as issuing a ‘fair warning’ to the tax avoiders: “we are coming for you”. In a speech to the TUC Congress earlier this month McDonnell vowed to tackle ‘tax evasion and tax avoidance that goes on, on an industrial scale’: “During the last general election campaign the Tories kept on accusing me of having a magic money tree. I found the magic money tree. It’s in the Cayman Islands. We are going to dig it up and bring it back here.” Party leader Jeremy Corbyn also promised in his main conference address that Labour would ‘clamp down on tax dodging’. Labour’s ‘Tax Transparency and Enforcement Programme’, still up on the party’s website and believed to be still policy, includes closing the ‘Mayfair Tax’ (private equity) and Eurobond ‘loopholes’, clamping down on umbrella agencies and the use of Advanced Thin Capitalisation Agreements, a General Anti-Avoidance Rule to replace the General Anti-Abuse Rule, and public filing of tax returns for large companies and high earning individuals. (More details on this programme here.) The party also continues to argue for greater resourcing of HMRC.
At the CIOT/IFS/Labour Business fringe event on taxing business in a digital world, Shadow Treasury Minister Anneliese Dodds confirmed that it remains Labour policy to put the corporation tax rate back up “to 26 per cent, eventually. [Plus a] small business rate [of] 21 per cent.” Dodds acknowledged that it was getting harder to collect corporation tax from digital firms, but thought that was a logistical problem and not a reason to get rid of corporation tax, as some argued for. She said that Labour wants to clamp down on false incorporation. She repeated her view that tax needs to be transparent, fair and progressive.
In his conference speech, Jeremy Corbyn reacted to remarks by Theresa May’s at the United Nations earlier that day, saying: “The Prime Minister is in New York today promising that a post-Brexit Britain will offer the lowest corporation tax of all the G20 nations. Handouts to the few, paid for by the many and an already tried-and-failed strategy for boosting investment.”
Shadow Financial Secretary Anneliese Dodds – again, speaking at the CIOT/IFS fringe event – reconfirmed Labour’s support for public country-by-country reporting by multinational companies. She agreed with CIOT’s view that unilateral approaches are less effective than a joint approach across nations, when it comes to taxing companies, but struck a hopeful note, saying there is ‘a lot of support for dealing with loopholes in the international tax system’. However, she said, it was unclear if the UK government intends to collaborate on international efforts to tax multinational companies (such as French President Macron’s initiative). She added that Labour was working with social democrats in Europe to stop a ‘race to the bottom’ on tax. There are problems with arms length principle used for transfer pricing, she said. She observed that, at EU level, they have been talking for some time about a formula based system. Some have suggested applying this to some groups of firms not others. This would be complex and would need a debate about the fundamental building blocks of the tax system, she thought.
On the specific question of taxing large technology firms, Anneliese Dodds argued (again, at the CIOT/IFS fringe), that there is a need to rebalance the tax situation to help bricks and mortar business. Earlier the meeting had heard from Helen Miller of the IFS that intangible assets are hard to measure and ideas to tax multinational digital companies in terms of their users will be tricky. She suggested that a practical way forward was to try to reduce distortions. On the topical question of user-created value, Glyn Fullelove, CIOT Deputy President, explained that user and customer are different and it will be up to tax authorities to define where the value really comes from on a platform such as Facebook. The furore over the tax paid by digital companies is as much a regulation issue as a tax one, he suggested. The same point, about the need to think harder about regulation of large tech firms, was made by prominent Labour businessman and party donor John Mills at a Policy Exchange fringe event.
In the absence of new Labour policy, the recently published IPPR report, ‘Prosperity and Justice: A Plan for the New Economy’, is worth studying for signs of the party’s policy direction. Jeremy Corbyn called it ‘excellent’. John McDonnell said it was ‘magnificent’, ‘unchallengeable’ and likened it to the Beveridge report. He said Labour was thinking about its new manifesto and would be drawing on the IPPR’s report – in fact, they ‘might just re-cover it’. He praised it as something he could give to civil servants now to show the direction Labour in government would be traveling in.
So it is worth reminding ourselves what is in the IPPR’s report. It is, of course wide-ranging, but on tax its recommendations include:
Combining the rates and allowances for employee NICs and income tax into a single tax schedule, and applying them to all incomes on an individual, annual basis, while replacing the present system of marginal tax bands with a formula-based system, applying a gradually rising marginal rate of tax as incomes rise All income, whether from work or from wealth, should be taxed in the same way, abolishing capital gains tax and the separate rates of tax on dividends, and incorporating income from dividends and capital gains into the income tax schedule (though retaining the exemption from CGT for first homes) Abolishing inheritance tax, and replacing it with a lifetime gifts tax levied on the recipient, with a lifetime allowance of around £125,000 Replacing business rates by a new land value tax on all non-residential land, calculated on the basis of the land’s ‘optimum use’ under existing planning permission, not its current use Increasing corporation tax to 24 per cent, while simplifying the system of reliefs and allowances to increase the tax base Introducing an Alternative Minimum Corporation Tax (AMCT) as a ‘backstop tax’ levied on multinational corporations which consistently report low profits in the UK and are unable to show these are genuine. It would be levied on the company’s UK sales at a rate derived from its global profits relative to global sales The phasing down and eventual abolition of R&D tax credits other than for SME firms younger than seven years old, and the phasing down and abolition of the patent box. The money released should be channelled into direct funding for innovation through Innovate UK and the National Investment Bank
The eagle-eyed among you will spot that many of these proposals were adopted by the Liberal Democrats last week at their conference. Some of them (eg replacing IHT with a lifetime receipts tax) also appear in the recent report of the Resolution Foundation’s Intergenerational Commission. While we cannot be sure which of them will find their way into Labour’s next manifesto it is clear that on the left and centre of UK politics momentum is growing behind a quite radical set of reforms aimed at tackling avoidance and apparent distortions in the tax system, tilting the system more towards taxing land and wealth, and perhaps raising a bit (or a lot) of extra money too.
In this respect, the contribution of former Labour leader Ed Miliband at a Resolution Foundation fringe event is instructive. Miliband complained that while the ‘populist right’ offers ‘big, transformative solutions’, such as leaving the EU, the left does not but needs to. He gave taxing wealth and income at the same rate as an example of the sort of transformative policy the left should be embracing.
Employment structures and the gig economy
At a small business question time event, John McDonnell said the Taylor Report ‘failed’ because it did not see the ‘collective picture’, such as the role of trade unions. Workers should be protected and given guaranteed hours, he said. Flexibility within the labour force is important, but we need to see an end to the ‘outrages’ of low pay, he said. At the same event Alison McGovern MP, a member of the Treasury Committee, said Parliament must define better the terms used to determine employment types and Taylor’s ‘dependant contractor’ was too complicated a term to work. A ‘glaring omission’ in the Taylor report was the role of trade unions, she said. Simon McVicker, Director of Policy at IPSE, argued for a statutory definition of self-employment to separate it from the ‘gig economy’, worrying that Taylor’s ‘workers category’ could be a catch all. On IR35 which may be extended to the private sector, he said you need to give employee rights if you are going to tax people as employees. McDonnell told McVicker he will see if they can get some movement on this.
Many of the debates on the economy were framed in terms of supporting greater union involvement in work, including presenting this as the solution to managing the growth of the ‘gig economy’. There was little defence of the ‘gig economy’ for the flexibility it offers employees or employers. At an IPPR event, Kate Green MP compared zero hours contracts to people who searched for work in shipyards every day, 80 years ago. She called for more explicit analysis of why certain economic policies do not work for women and why women have been hit by tax and benefit changes. At a University of Warwick event, panellists lined up to condemn the ‘gig economy’. Professor Paul Warhurst, of that university, said England needs to catch up with the Scotland Fair Work Agenda. He called for the Government to measure the quality of work regularly rather than just the employment figures. Paul Novak, Deputy General Secretary of the TUC, complained that the Taylor recommendation that people should have a right to ask for guaranteed hours is ‘fanciful’. Josh Hardie, of the CBI, warned Labour against ‘mandating what business must do’. He said the CBI supported many of the Taylor Review’s suggestions. Finding a balance between flexibility and fairness, is key to managing the ‘gig economy’, he added.
One of the biggest announcements of the conference was that a Labour government will legislate for large companies to transfer 10 per cent of their shares into an ‘Inclusive Ownership Fund’. The shares will be held and managed collectively by the workers. The shareholding will give workers the same rights as other shareholders to have a say over the direction of their company. And dividend payments will be made directly to the workers from the fund. Payments could be up to £500 a year. Announcing the policy, John McDonnell said employee ownership increases a company’s productivity and encourages long-term decision making.
Critics of the policy have suggested that because the Exchequer would take the remainder of the fund over a sum of £500 per employee, it is essentially a hidden tax rise. Under the heading ‘Labour's worker ownership plan looks like a tax plan’, Dan McCrum in the Financial Times used the example of Vodafone, which has 104,000 employees and paid out £3.9bn in equity dividends last year. Even if we assume all of them are UK-based that only comes to £52m of the employee trust's dividend income of £390m, leaving £338m for the government to take out, ‘an effective tax rate of 87 per cent’. In an interview for CityWire, John Cullinane, CIOT’s Tax Policy Director, said some issues needed to be addressed or clarified around the new policy. These include what to do about multinational groups.
Housing and tax
The only new tax announcement at the conference was made by Labour’s Shadow Housing Secretary, John Healey. Healey said the next Labour Government would ‘strike a blow’ against housing inequality with a new national levy on second homes used as holiday homes, to help give homeless families the chance of a first home. In an article in The Independent, he wrote: “We know that nine in 10 second-home owners are in the top half of the wealth distribution, so it’s only right that they pay a bit more to help those with no home at all.” He also said that Labour will set up a fully-fledged housing department to lead the drive to ‘fix the housing crisis’, and he promoted Labour’s living rent homes imitative, with rents set at a third of average local incomes.
Brexit, of course, overshadowed all else at the conference. After much debate and argument, delegates voted overwhelmingly in favour of a motion saying: “If we cannot get a general election, Labour must support all options remaining on the table, including campaigning for a public vote. If the government is confident in negotiating a deal that working people, our economy and communities will benefit from, they should not be afraid to put that deal to the public.” Shadow Brexit Secretary Keir Starmer received a standing ovation when he spoke in support – but there are splits within the Labour movement about it. Unite general secretary, Len McCluskey, suggested remain should not be an option on the ballot paper in any referendum. Brendan Chilton, Director of LabourFutureUK, said: "This is a betrayal of the very highest order. It is a betrayal not only of the millions of Labour voters, but of our 2017 manifesto.” But John McDonnell, after initially suggesting remain should not be an option in a second referendum, repeated the motion’s formula that all options would be on the table.
Shadow Business Secretary Rebecca Long Bailey said the Tories will use Brexit as a ‘cover to roll back on our hard won workers’ rights’. Jeremy Corbyn said some Tories see Brexit as their opportunity to impose a free market shock doctrine in Britain. Keir Starmer highlighted that Labour’s six tests for the final Brexit deal were ‘not plucked from thin air’. They were based on the promises the Tories made about the Brexit deal they would deliver. They are tests Theresa May said she was ‘determined to meet’. If PM May brings back a deal that fails these tests – and that looks increasingly likely, he believes – Labour will vote against it. Labour will also vote down a ‘blind Brexit’ a deal that gives no detail about the terms of our future relationship.
At a small business fringe event John McDonnell asked ‘What the hell is happening with Heathrow?’ in relation to Brexit. He predicts the EU will offer some kind of deal to PM because ‘they are worried about Boris taking over’. At the same event, he told journalist Adam Payne, of Business Insider, that any negotiation can be seen as cherry picking. Stephen Kinnock MP told a fringe event that an EEA deal can deliver, popular in Parliament, a good plan B in the event of ‘no deal’, and there is no parliamentary majority for a ‘no deal’. He worries that a second referendum will not ‘bring the country together’. Lisa Nandy MP suggested people will forego economic benefits for power and control over their lives, the Brexit referendum showed this. Labour was wrong to think the main purpose was redistribution of wealth, should be redistribution of power.
The Irish Question
One of the most interesting fringe events at the conference was titled ‘Deal or No Deal: The Irish Question’. Jenny Chapman MP, who is part of Labour’s Brexit team, said she found anxiety in business and among the public has risen and risen as a potential hard Brexit nears, especially as it seems ‘no deal, no problem’ is now acceptable to some Tories. She is filled with ‘dread’ at the regular references to technological solutions on the border by the Government because it is part of ‘these impossible things’ that they say will resolve the border issue. She warned that border apparatus for travel and customs would not last a day on the border because of people’s opposition to it. Later in the Q&A session, she insisted that ‘there is a deal there to be made’ between Labour and the EU because of the party’s wish to keep much of the access to the single market and the customs union. Her fear is that the final deal to be presented to Parliament will be vague and MPs will be asked to vote on that.
At the same event Dominic Hannigan, Chair of the Irish Labour Party’s International Affairs Unit, said the one good outcome of the Brexit negotiations was the Common Travel Area, but this can be changed by a future UK government, and reminded the audience that Ireland is predicted to lose four per cent of its GDP as a result of a ‘hard Brexit’. The NI border is a deeply emotional and psychological matter – and not just economic, he said. He bemoaned that the 2016 referendum debate was just about Britain and did not include NI. He said more people in NI see their future with the Republic of Ireland as a result of Brexit, and there is talk in the Republic of re-joining the Commonwealth after Brexit to lessen the economic damage. Professor Michael Dougan, of University of Liverpool, warned of a massive bureaucracy with the categorising of exports and imports, as suggested in the Chequers Plan.
Margaret Greenwood, Shadow Work and Pensions Secretary, used her conference speech to state that universal credit is failing, driving people into debt, hunger and even destitution. The Government must stop the roll out of universal credit and fix its many flaws before it causes any more hardship, she urged. She promised a complete change of direction on social security. Over the coming months Labour will be inviting submissions from across the country to develop proposals for a social security system that is based on ‘compassion and respect rather than distrust and stigma’. At a fringe event staged by the Trussell Trust, Greenwood spoke of her concern about fluctuating payments in universal credit. She said self-employed people find the monthly reporting requirements very difficult because they tend to pay an accountant to manage their affairs once a year.
Treasury and institutional reform
John McDonnell, in his speech, promised to ‘reprogram’ the Treasury, rewriting its rule books on how it makes decisions about what, when, and where to invest. He said: “We will end the Treasury bias against investing the regions and nations. And we’ll make sure it assesses spending decisions against the need to tackle climate change, protect our environment, drive up productivity and meet the investment challenges of the 4th industrial revolution.” This reflects its manifesto commitment to consult on implementing the recommendations of the Kerslake Review of the Treasury.
Labour is already committed to a reform of the childcare system. Its manifesto talks of a transition to a system of high-quality childcare places in mixed environments with direct government subsidy, to extend the 30 free hours to all two-year-olds, and move towards making some childcare available for one-year-olds. In his conference speech, Corbyn said Labour will make 30 hours a week of free childcare available to all two, three and four year olds. And will provide additional subsidised hours of childcare on top of the free 30-hour allowance, free for those on the lowest incomes and capped at £4 an hour for the rest.
Supporting small business
Stephen Kinnock MP told a fringe event that there is a need for improved small business administration, such as the kind of One Stop Shops they have in the USA. He would like Labour to stick to the principle of ‘stream lining and simplification’ in its small business policy. At the same event Simon McVicker, Director of Policy at IPSE, urged Labour to ‘strengthen’ the role of the small business commissioner.