Test 25 January, 2018

Fair and effective: a tax system fit for the future

Many would argue that the UK tax base is under pressure. The threshold for incurring income tax has increased- a move Labour supports, but which has not led to an increase in people’s incomes with changes in social security and stagnating wages. This has occurred at the same time as a cut to corporation tax, and uncertainty around arrangements for Business rates. We now find that taxes are levied even on illegal landfill sites- certainly the first use I have spotted of a tax levied on an activity which should not exist! Tax-free childcare has been introduced, which is largely regressive when compared with the previous childcare vouchers scheme. And the number of tax expenditures has grown, with little apparent government review on their value and efficacy.

Labour’s approach is different and is based on the belief there is strong public support for a more progressive taxation system. 95% of the population who earn less than £80,000 annually should not face tax rises- with those earning above that amount asked to pay in a bit more, through a reduction in the threshold for the 45p rate, reintroduction of the 50p rate on earnings over £123,000 annually, and our plans for an Excessive Pay Levy. Labour remains unconvinced that cutting corporation tax has actually raised additional revenue for public services. Therefore, the rate should gradually move to 26% by 2020/21- but with a reintroduction of the small profits rate for smaller businesses.  And we would work to finally get a handle on tax expenditures. Some estimates suggest that the value of these could equate to over a third of the revenue obtained by government from both tax and non-tax sources- yet tax expenditures fail to obtain the scrutiny they deserve. While some tax expenditures may be appropriately targeted, many others may not be. So far, the Office for Tax Simplification has been hampered by requirements that its recommendations be revenue-neutral. This no longer makes sense in a context where revenues are under pressure.

Labour would also prioritise combating tax avoidance and evasion. That means playing a part in multinational actions – not standing against them, as with the UK’s push against more transparency for trusts- and developing the range of measures spelled out in Labour’s Tax Transparency and Enforcement Plan.

Finally, Labour would have a more open debate and discussion about taxation – how it is raised, and what it is spent on. This process started with the production and publication of our ‘grey book’, which clearly spelled out the anticipated cost of our commitments and how we would raise revenue to pay for them. If elected to government we would continue this open approach, with the Office for Budget Responsibility made accountable to Parliament rather than the government, and its remit expanded to include a focus on Labour’s Fiscal Credibility rule, which would require a Labour government to balance current spending against revenue across the parliamentary term. Our approach would also involve a more open Treasury, with stronger links to relevant departments like BEIS and DCLG, and a genuine commitment to supporting devolution.

Of course it will be difficult to alter the direction of travel of tax policy-making. But by setting out our plans now, and engaging as much as possible with a range of stakeholders about how we can put them into practice, we believe that reform is genuinely possible, to make our tax system fairer and more effective.