UK General Election 2024: Change begins now

We are promised that change ‘begins now’ and that this will be an ‘age of national renewal’, but how will this be funded?

Other than unequivocal promises to impose VAT on private school fees and to remove business rates relief from those schools, the Labour Party manifesto was light on tax policy.

We have been guaranteed that there will be no increases in the rates of the major taxes – income tax, national insurance, VAT, and corporation tax.  Indeed, the rate of corporation tax will be kept under review to ensure that it remains competitive.

There were promises to tax carried interest as income, rather than capital gains, although these have been watered down to exclude circumstances where individuals have invested their own capital.  For this to be a meaningful change, capital gains tax (CGT) will have to be charged at a lower rate than income tax – important because the Labour leadership have not ruled out increases to CGT.

Big changes are expected to the UK’s non-domicile regime, and these seem likely to be wider ranging than those proposed by Jeremy Hunt in his Spring Budget speech.  The inheritance tax (IHT) position of temporary residents seemed to be one area of difference between the parties.

The other areas of tax change that have been highlighted are restriction of business and agricultural property reliefs from IHT, changes to the IHT treatment of offshore trusts, and possibly changes to the CGT base cost ‘step up’ on death.

This leaves the perennial cash generator, tax avoidance.  Investment in HMRC to tackle tax avoidance is promised.  But can this generate significant sums?

The most recent HMRC analysis of the tax gap suggests that tax avoidance only accounts for 4% of the notional shortfall in tax revenue.  The biggest single component is ‘failure to take reasonable care’, at 30%, with error and legal interpretation accounting for a further 25%.  Would investing in education and genuine tax simplification yield more?

But is there a headline in that?

Non-payment, criminal attacks, the hidden economy, and evasion together account for 41% of the tax gap.  Along with tax simplification and education, enforcement should clearly be a greater focus.

Businesses are promised the retention of ‘full expensing’ and the annual investment allowance, together with greater clarity about what expenditure qualifies.  Together with a roadmap for business taxation, there is hope for a stable business tax regime that will allow businesses to make informed investment decisions that will in turn help generate the growth needed by the new government and the country.

There will be many twists and turns over the coming days and weeks as the new government begins work.  Labour have reasserted the importance of the Office for Budget Responsibility (OBR) and guaranteed it time to report before each fiscal event, meaning that the first Budget for this new government will not be before mid-September.

We face a period of speculation between now and then.