After 13 years of Labour government I will confess to being slightly out of touch with the detail of Conservative tax policy, let alone Liberal Democrat fiscal proposals. So, as Messrs Cameron and Clegg consider a working arrangement for government, how do the manifesto policies of the two parties match up, and how easy would it be for the two parties to agree on a common fiscal approach?
Conservative manifesto proposals
1. Cancel the employees' national insurance rise of 1% due on 6 April 2011.
2. From the same date, raise the lower employers' national insurance threshold by £21 per week.
3. Make £750 of income tax personal allowance transferable between spouses and civil partners.
4. Raise the inheritance tax threshold to £1 million.
5. Make the increase in the stamp duty land tax threshold for first-time buyers to £250,000 permanent.
6. A further (unspecified) levy on non-domiciled taxpayers.
7. End compulsory annuitisation for pensions at age 75.
Liberal Democrat manifesto proposals
1. Increase income tax personal allowance to £10,000 per year.
2. Restrict income tax relief on pension contributions to basic rate.
3. Align capital gains tax rates to income tax rates.
4. Reduce the capital gains tax annual allowance to £2,000.
5. Align benefit-in-kind taxation for employees with that for cash remuneration.
6. A general anti-avoidance rule for corporation tax, with a clearance procedure paid for by the taxpayer.
7. Bar stamp duty land tax avoidance using companies.
8. Use HMRC resources freed up by the increased personal allowance to more effectively target tax evasion.
Summary
At first sight the manifestos are hardly overflowing with common ground, if not being directly contradictory on any particular points. However, David Cameron did indicate on Friday a willingness to take on board the idea of a higher personal allowance, whilst suggesting that the Liberal Democrats might be comfortable with the proposed national insurance changes. I may also mischievously suggest that the negotiations with the Liberal Democrats might be a convenient excuse to drop the £1 million inheritance tax threshold proposal, which is starting to cause the Conservatives some embarrassment. Thus with a spirit of compromise there is probably nothing irreconcilable here.
What is clear, as I have said before, is that drastic action needs to be taken to address the colossal budget deficit which a new government will inherit. It may prove to be to the two parties' advantage that they have been less than specific on how they might achieve this, as this will avoid any embarrassing climbdowns by either side. The Conservatives are pinning great hope on eliminating waste, which I must say is a tune we have heard before, but then again government has certainly got bigger over the past 13 years, and can be expected to get considerably smaller given a change of government. Effective pursuit of tax evaders is long overdue; the HMRC disclosure schemes have been an interesting experiment in this respect, encouraging tax evaders to 'turn themselves in', but in order to address the hard core of the black economy more pro-active initiatives are required. However, I suspect this still leaves considerable requirement for further cuts and tax rises, and it will be the management of that process that will largely determine how successful the next government will be.
Thus I think there are more formidable obstacles in the way of an agreement than tax policy (Europe, immigraton and the voting system come to mind) and it is certainly not beyond the wit of man to envisage agreement being reached in this particular area.
Mark Simpson
10 May 2010
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