With the election over, how do we pay for the various pledges made?
Corporation tax take since 2009 perhaps provides an interesting case study of potential options (Source: https://www.ifs.org.uk/election/2019/article/conservative-manifesto-an-initial-reaction-from-ifs-researchers):
So, in the context of the promised Conservative “triple lock” on VAT, income tax and national insurance, we see 3 factors being fundamental to funding pledges.
On Corporation tax a U-turn on the previous intention to reduce corporation tax to 17% from next April has already been confirmed. The Institute for Fiscal Studies estimate that this change should save c.£6bn (though of course this is a saving against what the tax would have generated with the reduction, not what it has generated in the past)
Whilst Brexit will undoubtedly continue to put challenges on growth in the short term at least, it is fair to say that the last few years of uncertainty have restricted investment and the growth that might otherwise have been achieved in the UK. As a result, it will be interesting to see, now the brake of uncertainty is to be released, whether and to what extent any pent up demand might feed through and help improve the current economic trajectory.
In some ways this is the most interesting angle, as the least likely to feature negatively on the general electorate radar (since these largely don’t affect the vast majority of the electorate directly) – and therefore undoubtedly important if Boris is to retain support from traditional Labour areas outside of the Brexit issue in 5 years time.
Recent examples have been a restriction on pension reliefs for higher earners and tax relief on interest on buy to let property. As we commented here: https://insights.polestarcf.com/post/102ftwn/will-a-capital-gains-tax-rise-be-used-to-help-fund-the-parties-spending-pledges, by reference to comments by the former head of HMRC, Entrepreneur’s relief could well fall into this category. Indeed, we had prepared an email for a hung parliament in which Oli, our graphic designer, created a great GIF as Labour would almost certainly have cancelled ER. That GIF is too good not to share and, who knows, it may well still be relevant in the context of the above, though under Conservatives a reduction may be more likely than outright cancellation.
To address this risk, we have prepared solutions to ensure that you could very quickly lock in gains at 10% if ER is to be removed or otherwise limited. If you would like to know how, please give me a call on 07960 126559.
Corporation tax revenues today are at much the same the level they were at before the financial crisis, despite a 7 percentage point cut in the headline rate. That is largely because a series of other changes have increased the effective rate of corporation tax: the headline rate is not all that matters.
