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By Kameron Virk
May 17 2017 12:22 PM
With dispute raging over the tax plans set out in Labour’s manifesto, here are some of the questions being asked:How much does Labour want to raise?
The party has calculated it can bring in an extra £48.6 billion a year from its proposed hikes, to match the additional spending it is planning.
Labour says its plans hit the wealthy and big business, with income tax rises to 45p on earnings over £80,000 and 50p over £123,000 to raise £6.4 billion, as well as £19.4 billion revenues from increasing corporation tax to 26%, £5.6 billion from a “Robin Hood tax” on financial transactions, and £1.3 billion from an “excessive pay levy” on companies with staff earning more than £330,000.
They say there is a £58 billion black hole in the Labour manifesto – a figure disputed by Jeremy Corbyn’s party, which insists the plans are fully costed. However, the Tory claim relates mostly to the cost of nationalising rail, water, the energy grid and Royal Mail, as well as Labour’s plans to borrow for investment. A Tory analysis released on Tuesday did not challenge Labour’s estimates of the cash that could be raised from its new taxes.
Hammond has a cheek to question Labour's figures when he is £20bn out in HS2 costing. And let's not forget the £2bn black hole in his Budget
We won’t know for sure until their manifesto is launched later this week. But senior Tories have been careful not to rule out hikes in income tax, national insurance and VAT, as David Cameron did in 2015. Theresa May often describes the Tories as a “lower-tax party”, compared with a Labour Party whose “natural instinct is to raise tax”. But Philip Hammond’s plea for more “flexibility” on the issue suggests the Chancellor wants the freedom to dial tax up where necessary in the next parliament.
Tim Farron’s party has proposed adding 1p to all rates of income tax to raise £6 billion for the NHS, social care and public health.
The independent Institute for Fiscal Studies (IFS) says that is “highly uncertain”. It points out that rises are targeted at businesses and individuals able to change their behaviour to reduce liabilities, by emigrating, shifting activities overseas or working less. The flagship income tax policy could raise the sums Labour expects or “nothing at all”.
It depends how you look at it. The top rate of income tax peaked at 99.25% during the Second World War and was still at 83% when Margaret Thatcher came to power in 1979. Even that famously tax-cutting prime minister kept it as high as 60% – 10p in the pound higher than Corbyn’s proposed top rate – until 1988, when it was reduced to 40%.
IFS director Paul Johnson says Labour’s plans would take the tax burden to its highest level in 70 years. Following a sharp rise during the Second World War, the government was taking around 40% of national income in tax by the end of the 1940s and the figure spiked around that level again in 1970 and 1983, but since 1997 it has fluctuated between 35% and 38%. A return to the level of the 1940s could mean a rise back above 40%.
Tax as a proportion of GDP varies wildly from less than 2% in some of the oil-rich Gulf states to more than 50% in Denmark. Britain’s current level of around 36% is close to the EU average and comparable to countries such as Portugal, Spain and Poland, but well below Germany, France and Belgium, which have all topped 40% in recent years.