Review of this autumn's Labour Conference in Liverpool, from a tax perspective
To no-one’s surprise, ‘tax dodging’ and the corporate tax system came in for a battering at Labour conference. In his Leader’s Speech Jeremy Corbyn noted that Sir Phillip Green had been made an ‘efficiency tsar’ by the Conservatives, commenting drily that the Government ‘might be a bit more efficient if the super-rich like [him] actually paid their taxes’. Shadow Chancellor John McDonnell attempted to turn tax into a matter of patriotism in his keynote speech, saying ‘Patriots should pay their taxes’, a theme also taken up by Shadow Chief Secretary Rebecca Long Bailey.
McDonnell identified four key policies for tackling avoidance in his conference speech: a new Tax Enforcement Unit at HMRC, doubling the number of staff investigating wealthy tax avoiders; banning ‘tax-dodging companies’ from winning public sector contracts; ensuring that all British Crown Dependencies and Overseas Territories introduce a full, public register of company owners and beneficiaries; and making sure HMRC has ‘the staffing, the resources, and the legal powers to close down the tax avoidance industry that has grown up in this country’. These proposals were drawn from the party’s Tax Transparency Enforcement Programme launched by McDonnell in April in the wake of the Panama Papers controversy. McDonnell also praised a report on HMRC which had been prepared for him by a group led by Prof Prem Sikka. The report includes the formation of ‘a Supervisory Board, consisting of stakeholders, to watch over the HMRC Board to give it direction and enhance its public accountability’, and also making the tax returns, related computations and documents of all large companies publicly available. McDonnell praised the report in his speech and promised action in this area but did not specifically endorse these proposals.
The announcement that Labour would increase corporation tax by 1.5% (or ‘up to 1.5%’ - there seems to be some confusion), while significant in its own right, should command further interest for two broader reasons. First, that Jeremy Corbyn strongly hinted that this was just the first piece of a wider plan to get business to pay for a new ‘National Education Service’. Secondly, this is a sign that Labour remains attached to the idea of hypothecation (heavily used by Ed Miliband and Ed Balls in the last Parliament) and we should expect future tax proposals to continue to be tied to particular spending pledges.
Parts of Labour continue to be anxious over perceptions that the party may be seen as anti-business. The party’s Shadow Minister for Small Business told a conference meeting that: “Those of us who understand the importance of Labour being a pro-business party have to make that case – perhaps there are some of our colleagues where that isn’t an automatic instinct.” Former Business Secretary Angela Eagle worried that pro-entrepreneurial voices in Labour are not heard enough. Labour Business have launched an initiative for local parties to appoint business liaison officers (alongside existing trade union liaison officers). A leading pro-business figure in Labour is Stephen Kinnock MP (son of Neil), Chair of the Labour Business Parliamentary Group. An essay published by Kinnock in May is perhaps the best attempt in recent times to come up with a party-uniting set of principles to underpin Labour’s relationship with business. He summarises these as: “Labour’s goal is to ensure that the market serves the people, not the other way round, and our mission is to reform capitalism, not to overthrow it.”
Brexit is seen by Labour as an opportunity to be seen to be standing up for business, even the ever-unpopular financial services sector. In essence Labour’s attitude is heavily critical of the sector but nevertheless concerned about post-Brexit job losses and the consequent loss of tax revenue. At conference, Labour made maintenance of the right of UK financial services companies to win business across the EU a ‘red line’ for Brexit negotiations. However McDonnell also repeated his call for a Financial Transaction Tax, unilateral if necessary. Former Director of Public Prosecutions Keir Starmer has been appointed Shadow Brexit Secretary by Jeremy Corbyn, and has wasted no time in submitting 170 questions that the Conservative Government ‘must answer’ in relation to Brexit. This can be taken as a clear sign that Labour – and Starmer in particular - intends to provide robust scrutiny and hold the Government to account over Brexit. The three tax-related questions are, in essence, whether the VAT system is going to be maintained in its current form or reformed, whether duties and other taxes will be maintained or reformed, and whether ECJ rulings (in particular those where the ECJ has ruled in favour of taxpayers in disputes with the UK authorities over their tax rulings, finding them to be incompatible with EU law) will continue to have force in a post-Brexit Britain. The Government has not yet responded to these questions (and is not expected to do so directly).
One area we should expect proposals to emerge from Labour in due course is on the taxation of wealth. John McDonnell trailed this in his keynote speech, telling the conference: “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.” Another area the party is exploring is Universal Basic Income (UBI). McDonnell said this was necessary because ‘work is no longer lifting people out of poverty’ and said Labour would adopt a gradual approach to making UBI a policy.
Labour’s new Economic Policy Commission (merging two previous commissions) brings together shadow ministers, representatives of the party’s National Executive Committee (NEC) and other parts of the party to act as a forum for policy discussion, gathering views from party members, supporters and the wider public on what Labour’s priorities and policy approach should be. It has met five times (including once by teleconference) so far in 2016. Its annual report, approved by the conference, includes two paragraphs on taxation, which consist of unsurprising revelations such as that submissions to the Commission argue that tax policy is “in need of reform” and there is concern over “the continued problem of tax evasion and aggressive tax avoidance.” The Commission concluded that “Labour needs a comprehensive plan to restore transparency to our tax system, and that we must close down tax havens and exploitative loopholes.” A separate ‘Priority Issues’ document is more interesting. It highlights three priority areas for policy development: boosting productivity, regional balance (‘Ensuring prosperity reaches every corner of the country’) and producing a proper industrial strategy. On the first, some submissions have already suggested that challenging corporate practices (including tax avoidance) should be a focus. On the second the structure of taxation is mentioned as an area to be examined. On the third tax gets a number of mentions (see below).
Work to develop a comprehensive industrial strategy (announced by Rebecca Long-Bailey) will be a priority for the year ahead. This will involve a national investment bank and regional development strategies, supported through public procurement and in-sourcing, with tax policies to support industrial development, new jobs and apprenticeships. Labour hope that it will reverse the trend for insecure, zero hours jobs and low wages. ‘A proper industrial strategy’ was one of three priorities for policy development identified by Labour’s Economic Policy Commission (see above). The Commission report that they have received calls from both EEF and the FSB for a reassessment of how plant and machinery are valued in the current business rate system. “There was a clear feeling that the taxation of new plants a machinery was acting as a disincentive on investment and innovation,” notes the Commission, adding that UK spending on research and development lags behind other developed economies. “Labour therefore needs to consider how to boost R&D spending, with the aim of matching that of world leading technological countries”. As yet there is no news from the party’s review of business incentives, launched last year by the party’s Treasury team. Labour are dismissive of the Conservatives’ mooted industrial strategy, which they see as lacking substance.
CIOT Head of External Relations
19 November 2016
NB. This article is part of a series on this autumn's party conferences. Together they expand upon an article published in the November edition of Tax Adviser