This transcript has been edited for length and clarity.
David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: tax on the ballot, U.K. edition.
Since the announcement of a July 4 general election, tax has made many appearances in the U.K. parliamentary campaign. So in this episode, we'll be taking a look at where the leading parties stand on the issues and what we can expect to see as voters head to the polls.
Here to talk more about this is Tax Notes reporter Sarah Paez. Sarah, welcome back to the podcast.
Sarah Paez: Thanks, Dave. It's great to be back.
David D. Stewart: So for listeners who haven't been paying close attention to U.K. politics, could you give us just a brief rundown of what's been going on over the last couple of years?
Sarah Paez: Yeah, so the Conservative Party, which is the current ruling party, has actually been in power since 2010. And that sort of kicked off with David Cameron as the Prime Minister. He was the one who guided the country through the Brexit referendum. And then it was Theresa May. Boris Johnson, who maybe is a more recognizable name in U.K. politics as of the last five years, became leader of the party in 2019.
And in 2022, Liz Truss was actually named the Prime Minister, and that sort of kicked off this, I would call it, a period of instability in U.K. politics. Notably, Liz Truss was only prime minister for 50 days. Her minibudget in September 2022 was received incredibly poorly by economists and observers. It led to markets plunging, and it was mostly cited because of these planned tax cuts that didn't have the funding to back them up.
So after Liz Truss's short tenure, Rishi Sunak, who was the chancellor of the Exchequer, stepped in to become the prime minister, and he is who is currently running the U.K. Conservative Party government right now.
David D. Stewart: Okay, since we're already talking about the Conservatives, going into this election, what are they talking about on tax?
Sarah Paez: Yeah, so one of the biggest things that the Conservative Party has just repeatedly been going over is these cuts to the national insurance contributions. So national insurance contributions are basically what we would think of as a healthcare tax. They're a payroll tax, they're administered by employers on employees, and it basically funds the National Health Service in the U.K., which is the government-funded healthcare service. So a big talking point of the Conservative Party has been, "We're going to lower your payroll taxes by just sort of phasing out the national insurance contributions."
The current Conservative Party plan is to further reduce national insurance contributions by 2 percentage points since they were already reduced under the last budget. So that's a big talking point of the Conservative Party, but also they've generally tried to position themselves as the party of business, very supportive to big business, corporations. So they're planning to extend the full expensing policy, which was put in in the autumn budget, which basically allows companies to fully expense plant materials.
And the Conservatives have promised that they will not raise the corporation tax because the corporate tax was actually set at 19 percent for the tax years 2017 to 2022, and then the main rate was raised to 25 percent in 2023. And for small companies, they were allowed to keep that 19 percent corporate tax rate. So that was a really big area of contention because the Conservative Party had, like I said before, positioned itself as the party of big business, of driving investment, and here they were raising the corporation tax rate. So I think they're sort of trying to signal that they're going to continue to be supportive even if they're unable to cut taxes to do so.
David D. Stewart: So are the Conservative plans going into this election a shift from what they'd been doing previously?
Sarah Paez: Well, I would say there's been many previous statements from Conservative Party leadership, from the chancellor of the Exchequer, Jeremy Hunt, saying, "We want to cut taxes, we want to cut taxes." And then there's been generally this pushback from think tanks, from the Office for Budget Responsibility, which is the U.K. national watchdog, the budget watchdog, and experts like economic experts basically saying, "You don't have the money to cut taxes the way that you want to."
So I think we've seen the Conservative Party try to twist itself around that and go for, what I would call, the low hanging fruit, these national insurance contributions, just slowly cutting away and saying, "Eventually, we're going to phase these out." But that could be a time where the Conservative Party is no longer in office. And so it's kind of one of those, it makes sense as a political commitment because it's not necessarily going to come back to bite them.
David D. Stewart: So how have people reacted to these sort of dialed back ambitions of the Conservative Party's plan?
Sarah Paez: Well, I think for some people it's more of the same, right? Look, comparing the Conservative Party manifesto to some of the other manifestos, as some people are saying, it's not really going to change the outcome of how much tax is paid by the average person in the U.K. For example, Dan Neidle, he's a former tax lawyer turned a tax commentator, he runs Tax Policy Associates, was saying that under both the Labour and the Conservative Party tax plans, it's not that much different in what the average person is going to pay in tax.
So I think the people who are watching this, there's some organizations that are worried about potential austerity measures that would come from maybe cutting taxes too quickly or too many taxes. And that's usually been a criticism for the Conservative Party. But then, on the other side of it, there's also concerns that the tax burden on your average U.K. person is only going to continue to grow. And that's not even because of any policy that's being pushed by any party, it's just because of inflation and the way that taxes are indexed to inflation. So yeah, it's been interesting to see the, I guess, chatter go from, "Oh my gosh, this is going to crash the markets" to, "Yeah, it's really not going to actually change that much."
David D. Stewart: All right, well, since you mentioned the other parties, let's talk about the other leading party in the U.K., the Labour Party. What are they proposing going into this election?
Sarah Paez: So the Labour Party also recently released their manifesto, and basically they're calling for some pretty modest tax plans. They do want some more spending commitments than the Conservative Party has laid out, but really their goal is "We don't want to raise any taxes on your average working person. We really want to deliver better services for you in terms of the National Health Service. We want to crack down on tax avoidance and evasion."
So they have got these plans to basically abolish tax breaks for nondomiciled individuals. This was a thing that made headlines about a year ago when people found out that current prime minister, Rishi Sunak, who at the time was chancellor, his wife was actually taking advantage of nondomicile status in the U.K. So she was not domiciled in the U.K., which meant that she didn't have to pay tax on her non-U.K. income.
So again, Labour is sort of seizing on that as a highly contentious political issue and saying, "We're going to get rid of these tax breaks, we're going to change the way that non-doms," what they're called, "are taxed." And then they also want to have more funding and more resources for HMRC, the tax authority, to reduce tax avoidance and basically help HMRC go after tax avoidance by larger businesses, corporations, multinational corporations. They also want to actually start applying VAT and business rates. Business rates are the U.K. version of, it's like property taxes but for high street businesses like brick and mortar, leisure, tourism businesses, things like that. So they would start applying those to private schools to basically broaden the tax base.
And with all of these measures, they're saying that they could raise over £6.7 billion by fiscal year 2028 to 2029. So they've really taken a fiscally expansive policy but very, very cautious on the, "We're not raising taxes, we're not raising income taxes, we're not raising national insurance contributions" but still finding ways in the budget to broaden the tax base.
And I think they're sort of going after this idea, this more left-leaning idea that we should go after the people and the payers that can afford to pay more in tax. So they're also proposing a strengthened windfall tax on oil and gas companies that have extraordinary profits. So the U.K. already had that in place, it's the energy profits levy, but it was set to expire in 2028. And it's also set to sunset, basically, when there's no longer a need for it, so when these businesses are not reporting extraordinary profits. And so Labour wants to tweak that a little bit and say, "Well actually we should keep this because it is a way for us to fund these green energy, these climate change commitments that we have that can go directly into that pot of money."
David D. Stewart: All right, well, so turning beyond the major parties, there's a number of smaller parties in the U.K. Have we seen any interesting tax ideas from those parties?
Sarah Paez: Yeah, so the U.K. Liberal Democrats, they're another left of center party. They have basically gone into the "We are going to set out our tax plans to fund public services." So some interesting stuff that I think we've seen from their plans. They want to raise bank taxes. They're also talking about cracking down on tax avoidance and evasion. And they actually want to, similar to the Labour Party, close loopholes in the windfall tax. They also want to reform the capital gains tax. They also want to review the reforms that the government put in place for the IR35 employee designation. So these are off-payroll employees, working people. And they actually want to abolish business rates and replace them with a levy on commercial landowners to support high street businesses. So like these in-person brick and mortar businesses. Another interesting one, they want to get rid of the VAT on children's toothbrushes and toothpaste and introduce a sewage tax on water company profits. So yeah, just some similarities with the Labour program, but definitely also some departures.
And so another party, the Green Party, they're proposing a carbon tax to get rid of fossil fuel use in the U.K. economy and then use that money to invest in green energy, the green transition. They're also advocating for a wealth tax of 1 percent annually on assets above £10 million and 2 percent on assets above £1 billion. Similar to the Liberal Democrats, they want to reform the capital gains tax because they'd like to align the rates paid by taxpayers on income and taxable gains. So you're seeing, again, this targeting of taxation on those who have the means to pay more and sort of also this more of a focus on funding changes that are going to be needed for the environment.
David D. Stewart: All right, I should note that we're recording this on June 18, but how are things looking? How is this election shaping up in the polls?
Sarah Paez: Well, it's really looking like it's going to be no surprise. Labour is projected to win by, many publications are saying, a landslide. So The Guardian's reporting on an Ipsos poll that's estimating that the Labour Party could win 453 seats and the Conservative Party would win 115. So that would give Labour a majority of 256 seats. The lesser parties, the Liberal Democrats is projected to win around 38 seats. The Scottish National Party, maybe 15. A smaller number for the Greens, about 3 seats. So yeah, it's looking like it's definitely going to be in favor of Labour. And then whichever party wins the most seats, either by itself or through a coalition government, gets to name the prime minister.
David D. Stewart: All right, well, we'll have to see how things play out in just a couple of weeks. Sarah, thank you so much for being here.
Sarah Paez: Thank you so much for having me.
David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Acquisitions and Engagement Editor in Chief Paige Jones. Paige, what do we have for us?
Paige Jones: Thanks, Dave. The submission period for the Tax Notes Student Writing Competition will be closing soon. Each year, we recognize superior student writing on unsettled questions in tax law or policy. Eligible students must be enrolled in an accredited undergraduate or graduate program during the academic year. Submissions are due by June 30. Visit taxnotes.com/students for more details.
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And finally, in featured analysis, Nana Ama Sarfo reviews the OECD's latest Tax Transparency in Africa Report.
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