General Election 2017: Tory plans for income tax and corporation tax cuts confirmed and an end to 'triple lock'

Writing in the manifesto, Prime Minister Theresa May said the Conservatives will provide ‘a strong economy built on sound public finances, low taxes, better regulation and free trade deals with markets around the world’ if they win a majority in the General Election.  Striking manifesto statements that “Paying your fair share of tax is the price of living in a civilised democracy” and “We welcome overseas investment and want investors to succeed here but not when success is driven by aggressive asset-stripping or tax avoidance” are reminiscent of May’s hard-hitting conference speech last year and complement interventionist and regulatory manifesto policies that some on the right will baulk at.

Unlike Labour and the Liberal Democrats the Conservatives have not provided costings for their manifesto.

Summary of Conservative tax proposals:

Taxes on income (inc national insurance)

Increase the income tax personal allowance to £12,500 and the higher rate to £50,000 by 2020
2015 manifesto pledges of no rise in national insurance or income tax (two thirds of tax ‘triple lock’) dropped, replaced by general statement of intent to lower tax and simplify the tax system (“It is our firm intention to reduce taxes on Britain’s businesses and working families”)
Introduce a one year holiday on Employer National Insurance Contributions for firms hiring service personnel after they leave service

Business taxation

• Corporation tax is due to fall to seventeen per cent by 2020, as planned
• A full review of the business rates system to ‘make sure it is up to date for a world in which people increasingly shop online’; make sure that revaluations of business rates are conducted more frequently and explore the introduction of self-assessments in the valuation process
• Help innovators and startups, “by encouraging early stage investment and considering further incentives under our world leading Enterprise Investment Scheme and Seed Enterprise Investment Scheme”
• “We will help provide the skills and digital infrastructure that creative companies need and will seek to build upon the favourable tax arrangements that have helped them, including the highly successful creative industries tax credits scheme”
• Remain committed to the devolution of corporation tax powers to Northern Ireland subject to the executive demonstrating fiscal stability

Indirect and property taxes

• A Conservative government “will not increase the level of Value Added Tax” (slightly different wording from 2015’s commitment of “no increases in VAT” – not clear if this is significant)
• Local residents can veto high increases in council tax via a referendum

Tax compliance

• Legislate for tougher regulation of tax advisory firms (in the absence of any further information this is presumed to be a reference to the ‘enablers’ legislation dropped from the pre-election Finance Bill rather than something additional)
• Take a more proactive approach to transparency and misuse of trusts
• Improve HMRC’s capabilities to stamp down on smuggling, including by improving the policing of the border as the UK leaves the EU
• Take further measures to reduce online fraud in VAT

Employment rights and pay

• Increase the National Living Wage to 60 per cent of median earnings by 2020 and then by the rate of median earnings
• Ensure that the interests of employees on traditional contracts, the self-employed and those people working in the ‘gig’ economy are all ‘properly protected’
• New right to request leave for training for all employee and the costs of training will be met by the Government, with companies able to gain access to the Apprenticeship Levy to support wage costs during the training period
• Legislate to make executive pay packages subject to strict annual votes by shareholders; commission an examination of the use of share buybacks, with a view to ensuring these cannot be used artificially to hit performance targets and inflate executive pay.

Social security and pensions

• Continue the roll-out of Universal Credit
• No plans for further radical welfare reform in this parliament
• Keep a promise to maintain the pension triple lock until 2020, and when it expires introduce a new double lock, meaning that pensions will rise in line with the earnings that pay for them, or in line with inflation – whichever is highest
• Ensure that the state pension age reflects increases in life expectancy, while protecting each generation fairly
• Continue to support the expansion of auto-enrolled pensions
• Means test Winter Fuel Payments

Fiscal and economic policy overview

• “There is still work to do on deficit reduction, so we will continue to restore the public finances over the course of the next parliament. We will continue with the fiscal rules announced by the chancellor in the autumn statement last year, which will guide us to a balanced budget by the middle of the next decade.” (NB. The AS2016 fiscal rules are: (1) the public finances should be returned to balance as early as possible in the next Parliament, and, in the interim, cyclically-adjusted borrowing should be below two per cent by the end of this Parliament; (2) public sector net debt as a share of GDP must be falling by the end of this Parliament; (3) Welfare spending must be within a cap, set by the government and monitored by the OBR.)
• Launch a new £23 billion National Productivity Investment Fund

Brexit

• Leave single market and customs union but seek a deep and special partnership including a comprehensive free trade and customs agreement
• Maintain as frictionless a border as possible for people, goods and services between Northern Ireland and the Republic of Ireland
• Replicate all existing EU free trade agreements and support the ratification of trade agreements entered into during our EU membership; introduce a Trade Bill in the next parliament
• Great Repeal Bill will convert EU law into UK law, allowing businesses and individuals to go about life knowing that the rules have not changed overnight. The bill will also create the necessary powers to correct the laws that do not operate appropriately once we have left the EU, so our legal system can continue to function correctly outside the EU
• Use the structural fund money that comes back to the UK following Brexit to create a United Kingdom Shared Prosperity Fund to reduce inequalities between places in the country

Other relevant policies

• Create a new presumption of digital government services by default and an expectation that all government services are fully accessible online, with assisted digital support available for all public sector websites
• Roll out Verify, so that people can identify themselves on all government online services by 2020; set out a strategy to rationalise the use of personal data within government, reducing data duplication across all systems
• A ‘modern industrial strategy’ – “identifying the industries that are of strategic value to our economy and supporting and promoting them through policies on trade, tax, infrastructure, skills, training, and research and development – just the same as in every other major and growing economy in the world”
• Meet the current OECD average for investment in R&D (2.4 per cent of GDP) within ten years
• Change the proposed Shale Wealth Fund so a greater percentage of the tax revenues from shale gas directly benefit the communities that host the extraction sites
• Publish operational performance data of all public-facing services for open comparison as a matter of course
• Support the development of a world-leading oil and gas decommissioning industry and create a multi-use yard and the UK’s first ultra-deep water port to support this industry
• Regulate more efficiently, saving £9bn through the Red Tape Challenge and the One-In-Two-Out Rule
• Ensure that consumers and businesses have access to the digital infrastructure they need to succeed - ensure that by 2020 every home and every business in Britain has access to high speed broadband; work to provide gigaspeed connectivity to as many businesses and homes as possible
• Changes to how care funding is means-tested, raising the ‘capital floor’ from £23,000 to £100,000 but including the value of the home in calculation of assets for home care as well as residential care; deferral will be allowed so costs are paid from the person’s estate after their death

PM May’s speech can be read here.

Read the full manifesto here.

REACTION

Paul Johnson of the Institute for Fiscal Studies responded to the dropping of most of the tax triple lock by saying "thank goodness for that." "It really was an extraordinary position for any government to put itself in, that it wouldn't increase any of the rates of any of the main taxes," he said, adding that while he doesn't think the Conservatives are looking for "big increases" in tax and NI they would have "some flexibility to respond if the public finances demand it". Carl Emmerson and Andrew Hood, both also of IFS, said moving to a pensions double lock undoes only around a quarter of the damage done by the triple lock to the long-run sustainability of the public finances. The IFS suggests a better answer is a ‘smoothed earnings link’ which  makes sure the state pension never falls in real terms, and rises in line with earnings growth over the long run.

Right-leaning thinktanks have given the manifesto a mixed reception. Mark Littlewood of the Institute of Economic Affairs said ‘ditching’ the tax-lock promise not to raise VAT, NICs or income tax may make the Chancellor’s job easier but ‘should have been replaced with a commitment to keep the overall tax burden below a third of GDP’.  At the Centre for Policy Studies, Daniel Mahone said the Conservative Party's fiscal target meant the UK would reach a budget surplus by 2025-26. “This will mean that the UK has lived beyond its means for a quarter of a century.  While it is quite understandable that Theresa May wants fiscal wriggle room during the Brexit negotiations, this fiscal target is disappointing. It should be seen as a ‘worst case’ scenario. The next government must aim to achieve a budget surplus at an earlier date.”

Federation of Small Businesses’ National Chairman Mike Cherry welcomed that Theresa May is not seeking a mandate to reintroduce the failed ‘strivers tax’ on the self-employed, which was dropped following the last budget. He said: “The 4.8 million self-employed in the UK are a highly motivated group of voters, who will want reassurance before the election that they will not be targeted for tax hikes or treated as a cash cow.” The Institute of Directors welcomed a ‘commitment to keeping corporation tax down’ but director Stephen Martin said measures such as greater powers to pause mergers and annual votes for shareholders on executive pay, will worry businesses that interventions will disrupt the normal flow of commerce. CBI director general Carolyn Fairbairn welcomed the ‘proposed increased R&D spending, planned corporation tax reductions and a commitment to act on business rates’.

By Hamant Verma