Tax at Labour Conference 2017

The manifesto

The manifesto for this year’s general election is still where it’s at for Labour tax (and most other) policy. Labour leader Jeremy Corbyn said in his keynote speech that there were “two stars of our election campaign. The first was our Manifesto that drew on the ideas of our members and trade unionists and the hopes and aspirations of their communities and workplaces. And we were clear about how we would pay for it by asking the richest and the largest corporations to start paying their fair share.” (The second star was the party’s activists.) Rather than the rethinking of policy which might be expected of an (admittedly narrower than expected) election defeat any policy work is expected to be incremental and developmental, thus Shadow Chancellor John McDonnell’s announcement that, “For each policy in our Manifesto, we are preparing detailed implementation plans.” There is as yet no timetable for these. The tax section of the 2017 report of the party’s National Policy Forum on the economy, which was approved by the conference, simply repeats the key manifesto policies on income tax and corporation tax (see below).

Corporate taxes

‘Giant corporations’ that fail to pay their fair share of taxes continue to be a favourite target for Labour’s ire, with variations on this theme coming in the keynote speeches of both Corbyn and McDonnell, as well as many others. This appears to cover both a view that such firms avoid taxes (hence various anti-avoidance measures – see below) and that the overall rate of tax faced by these businesses is too low (hence the continuing plan to raise corporation tax to 26 per cent (21 per cent for small profits)). McDonnell was keen to say that any increase in corporation tax rates under Labour will be done in stages. With regard to the Tory mantra that lower corporation tax rates have led to an increase in tax take is, he stressed that correlation was not causation. A particular focus for Corbyn in his speech was water companies. He said that of the nine water companies in England, six are now owned by private equity or foreign sovereign wealth funds. Their profits are handed out in dividends to shareholders while the infrastructure crumbles, the companies pay little or nothing in tax and executive pay has soared as the service deteriorates, he argued. Meanwhile McDonnell revealed that he boycotts Amazon now he ‘knows how they operate’.

Tax reliefs

As well as wanting an increase in the headline rate of corporation tax Labour are keen to see regular reviews of tax reliefs, something they say is never done, although the party is keen to say they understand why they were brought in. At the general election Labour proposed an independent review of business tax reliefs and tax-planning structures like trusts. “Where reliefs do not provide any demonstrable benefit, our review will consider their removal, reform, or replacement with more effective incentives, such as grant schemes to encourage business investment, and we will make recommendations on the structuring of legal vehicles used in tax-planning. It is anticipated that our review will deliver at least £4bn in immediate direct savings”. The party carried out a consultation on this area in 2015-16 but this was never formally reported on.

Avoidance

To pay for public services, Shadow Chancellor John McDonnell vowed in his keynote speech to ‘close the tax loopholes and avoidance scams used by the mega-rich’. McDonnell did not elaborate, but is likely to have been referring to manifesto proposals such as Labour’s ‘Tax Transparency and Enforcement Programme’ which included restoring preferred creditor status for HMRC, reduced incentives to self-incorporate as a result of higher corporation tax, closing the ‘Mayfair Tax’ (private equity) and Eurobond ‘loopholes’, and clamping down on umbrella agencies and the use of Advanced Thin Capitalisation Agreements. At a fringe meeting McDonnell reiterated his wish to see a General Anti-Avoidance Rule, calling the current GAAR inadequate and unable to challenge the abuses already established. Any transaction lacking economic substance will be considered to be a sham and thus not allowed for tax purposes. Oversight and guidance will be provided by a broader panel of experts. At another fringe meeting new Shadow Treasury Minister Anneliese Dodds made similar points saying a better GAAR was needed to stop the ‘cat and mouse’ games used to avoid tax. At a PCS Union event, McDonnell and others on the panel praised the work of UK UNCUT in getting tax avoidance and evasion onto the political and news agenda.

HMRC

The tax authority was accused by Martin McTague, Policy Director at the Federation of Small Business, of having a soft underbelly by going after SMEs to tackle tax avoidance and evasion rather than show that same energy to confront larger companies.  John McDonnell agreed with him and pointed to a report produced for him(McDonnell) by Prof Prem Sikka, that called for a complete reworking of the under-resourced HMRC. He argued that HMRC are only reducing the tax gap because ‘they do not include certain figures in it’ (he did not say which). Labour is also working further on its tax transparency and enforcement report (see above), we were told. “Fair means money is spent fairly. We cannot have a fair tax system without the people to collect it”, said McDonnell. Anneliese Dodds told a PCS Union fringe event that HMRC needs ‘adequate resources’ and there should be an end to ‘sweetheart deals’. HMRC’s motivation for Making Tax Digital is really to save money, she said. At the same event, McDonnell said HMRC’s workforce is ‘demoralised’. PCS’ General Secretary Mark Serwotka said HMRC are a ‘terrible employer’ and said his union will protect the confidentiality of whistle-blowers.

Personal tax – high earners

Beyond vows to make the rich ‘pay their way’ personal taxation was mostly absent from debate at the conference. Labour’s manifesto policies of a 45p rate of tax beginning at £80,000 per year and a 50p rate on income above £123,000 per year, were repeated in the report of the party’s National Policy Forum. The Forum’s report also reiterates the promise to ‘reverse Conservative giveaways to the wealthy’ on Capital Gains Tax (among others). At a fringe meeting, former leader Ed Miliband spoke of his anger about ‘millions going away in CGT because it is not set at income tax levels’. “We are rewarding wealth more than workers’ wages,” he argued. The party presumably also continues to support the manifesto proposal for an extra levy on ‘excessive pay’.

Employment structures

At the joint CIOT/IFS debate on ‘The changing world of work’, Peter Dowd MP, Shadow Chief Secretary to the Treasury, said the taxation of different types of employment is ‘one of the main challenges of our time’ and that it is wrong to assume that innovative businesses are treating staff in an innovative way. He said that a ‘systematic’ method was needed rather than a focus on purely national insurance differences. At the same meeting the TUC’s Kate Bell urged an end to the Swedish derogation for agency workers. (A fuller report on this event will be posted on the CIOT blog shortly.) On the same topic, Ed Miliband told a Resolution Foundation fringe meeting that Labour should push for ‘proper overtime pay’ for employees and ‘gig economy’ workers and auto-enrolment in trade unions for workers. MP David Lammy told a meeting that he is ‘delighted; to see Uber lose its license in London ‘because it does not pay tax – and that is not fair’ (even though Uber lost its license for public safety reasons). John McDonnell said Labour wants to find a definition of self-employment in which people are protected from being stuck in ‘bogus self-employment’. John Hendy QC, a barrister specialising in employment, will continue to look at definitions of self-employment on behalf of Labour, a process paused because of the snap general election.

Taxing wealth

At Labour’s conference a year ago John McDonnell told delegates: “In this coming period we will be developing the policies that will shift the tax burden more fairly, away from those who earn wages and salaries and onto those who hold wealth.” However since then Labour has gone quiet on this area. Manifesto promises were limited to reversing the Conservatives’ cuts in Inheritance Tax and a new levy on purchases of UK property by offshore companies/trusts. Questioned on BBC1’s Andrew Marr show about why he was not considering a wealth tax Jeremy Corbyn said Labour had put forward plans to raise more money from business. Pressed further by Marr he said he was not worried about taxing wealth, but wanted to tackle tax evasion and tax avoidance first.

Non-doms

Referring to the Finance Bill currently going through Parliament, Anneliese Dodds told a fringe meeting that non-doms have 15 years of grace to sort out their tax affairs and linked this to the changes to offshore trusts not coming into effect for two years. The party has been very critical of the non-dom proposals during parliamentary debate on the Bill, with the Shadow Chief Secretary, Peter Dowd, accusing the Government of 'aiding and abetting' non-doms to avoid paying taxes. The legislation on business investment relief is one of three areas picked out by Labour for debate in Committee of the Whole House (Wed 11 Oct).

Tax scrutiny

Labour spokesperson Peter Dowd praised the CIOT/IFS/IfG Better Budgets report, in particular the need for expert witness sessions during the Finance Bill parliamentary process and the need for more time to scrutinise the Bill. John McDonnell reiterated his challenge to Chancellor Philip Hammond for a TV debate on the Tory and Labour economic policies, first suggested by McDonnell ahead of the snap general election. McDonnell urged MPs to follow his example and publish their tax returns to ‘counter suspicion’. More broadly Will Snell of Tax Justice UK said that his organisation would start producing annual reports of the UK tax system.

Tax havens

Party spokesperson Anneliese Dodds called for an inquiry into the contents of the Panama Papers and for a ‘proper’ operational list of ‘tax havens’ (a list with bite, she said). She is disappointed that many companies are not on the list of Beneficial Owners who should be. The MP added that tackling money laundering is as important as tackling tax avoidance and evasion.

Fiscal rule

John McDonnell reiterated Labour’s commitment to a Fiscal Credibility Rule in his keynote speech. As set out at the general election, this rule means Labour will (a) close the deficit on day-to-day spending over five years, (b) make sure government debt is falling at the end of five years and (c) borrow only to invest.

PFI

John McDonnell’s big announcement at the conference was to say that as well as there being no new PFI deals signed by a Labour government, existing PFI contracts will be brought back in-house. PFIs have resulted in huge, long-term costs for taxpayers, while handing out enormous profits for some companies, we were told. He said the Tory Government could ‘intervene immediately’ to ensure that companies in tax havens cannot own shares in PFI companies, and their profits are not hidden from HMRC. An accompanying Labour press release about the PFI policy appeared to be less far-reaching than the speech. It suggested Labour will simply ‘review’ all PFI contracts and only take them over ‘if necessary’. Shareholders would be compensated in the form of government bonds, exchanged for shares, with Parliament assessing the appropriate level of compensation. A party source said that compensation for PFI shareholders could be lower if they were based in tax havens and higher for pension funds.

Property

The City is channelling investment into property speculation rather than into high value, high productivity businesses, argues Labour. Labour wants to see a levy on properties bought by overseas people for speculation.  Labour will also continue to look at a land value tax. Rent controls exist in many cities across the world, we were told, and Jeremy Corbyn wants UK cities to have those powers and for tenants to be better protected. Labour will also tax undeveloped land held by developers and give government the power to compulsorily purchase. 

Northern Powerhouse

Labour will legislate for a fair distribution of investment. John McDonnell promised to devolve decision making through the Regional Development Banks, city Mayors, and regenerate the powers and resources available to local councils.

Pay and debt

Labour will commission a thorough review of the scale, causes and responses to debt. The public pay cap will be scrapped ‘once and for all’. John McDonnell said the Government should apply the same rules on payday loans to credit card debt. It would mean that no-one will ever pay more in interest than their original loan and a Labour government will change the law if necessary.

Universal credit

Debbie Abrahams, Shadow Secretary of State for Work and Pensions, called on the Prime Minister to halt next month’s Universal Credit roll out to enable the difficulties that one in four people face because they have to wait six weeks for payment when transferring to Universal Credit to be resolved. Abrahams said the Tories’ social security policies have failed to respond to the changing world of work, where workers are often stuck in an endless ‘low pay, no pay’ cycle. Backbencher David Lammy said ‘swathes of the country not part of the asset class’ are excluded from the digitisation process, partly because of the poor rollout of broadband, especially available 4G and 5G. This leads to problems with people accessing Universal Credit which is digital by default, for example.

Student finance

Labour is claiming credit for pressuring the Government into discussing reducing interest rates and raising repayment thresholds for student loans. Labour has what it calls a ‘fully-costed’ commitment to scrap tuition fees. The party says that waiting until 2022 could treble the cost of a write off of ‘student debt’ and John McDonnell is calling on the Chancellor to act now, ‘before the situation becomes unmanageable’.

Industrial Policy

Shadow Business Secretary Rebecca Long-Bailey launched a Report on Alternative Models of Ownership which, she said, would “start asking fundamental questions about how we achieve real diversity of business in the digital age, and how to ensure that its enormous potential benefits serve the many, not the few.” John McDonnell announced that Labour will establish a Strategic Investment Board, comprising the Chancellor, Secretary of State for Business and Governor of the Bank of England, to co-ordinate the promotion of investment, employment and real wages. Labour also promised to bring investment in research and development in line with other major economies and create ‘national missions’ to deal with the big issues of our time, such as the ‘fourth industrial revolution as a result of the growth in use and improvements in technology. Backbencher Seema Malhotra spoke on the fringe of Labour setting ‘national missions’ with targets, such as on zero emissions and the impact of automation on the Labour force. 

Equality

Labour will ensure that every piece of legislation will be measured against its impact on women before implementation.

Brexit

Labour’s stance on Brexit was centre-stage at the conference, with some unhappiness that a substantive motion on the topic was not selected for debate. Keir Starmer, Labour’s Shadow Secretary of State for Exiting the EU, said in his keynote speech that Labour would scrap the Government’s Brexit White Paper and replace it with ‘fresh negotiating priorities that reflect Labour values and our six tests’. Labour’s White Paper would have a strong emphasis on retaining the benefits of the Single Market and the Customs Union.  He said: “We seek continued tariff-free trade between the UK and the EU, no new non-tariff burdens for business, regulatory alignment and continued competitiveness for goods and services.” Labour would drop the Tories’ Great Repeal Bill and instead introduce new legislation – an EU Rights and Protections Bill. Shadow trade minister Barry Gardiner was concerned that the Government has focused talks on customs on goods rather than services. “If we leave the single market, it is difficult to see how we can get certainty for financial services.” At a fringe meeting, a representative of the Federation of Small Business said multinational companies are ‘shrinking’ their UK businesses in anticipation of Brexit.  MEP Jude Kirton Darling said the EU is unlikely to offer the kind of pure trading relationship that many Tories want and instead it is common for EU trade deals to come with environmental and social standard attached.

‘Tax haven Britain’

The desire of Conservatives to turn a post-Brexit UK into a low tax, low regulation ‘tax haven’ was a recurring theme at the Labour conference, as it had been the previous week at the Lib Dem gathering. Jeremy Corbyn claimed a powerful faction in the Conservative leadership sees Brexit as their chance to create a ‘tax haven on the shores of Europe, a low-wage, low tax deregulated playground for the hedge funds and speculators’. He said the EU referendum result ‘does not mean giving a green light to a reckless Tory Brexit agenda that would plunge Britain into a Trump-style race-to-the-bottom in rights and corporate taxes’.  

Financial services

Labour’s financial services spokesman, Jonathan Reynolds, took questions from a mix of party members and business representatives at a fringe meting. The session was dominated by Brexit with a strong bias from all participants towards a ‘soft Brexit’ which retains as much access to EU markets as possible for UK-based  financial services. The perception of many Labour MPs (and others) that financial services is just ‘city boys’ in London, rather than an industry providing jobs across the UK, was discussed. Labour is planning a ‘financial services conference’ in December. The Labour in the City group has a new chair, with Sophia Morrell having replaced Kitty Ussher.

CIOT External Relations team.