Labour plans to overhaul tax rates for the wealthiest, increase corporation tax to 26% by 2022 and overhaul the £200bn corporate tax reliefs regime if they win the election
On corporation tax, the rate will go up 7% within three years to 26%, with the first 2% rise set for April 2020 when a 21% CT rate would start.
Labour says it would ‘gradually reverse cuts to corporation tax’ to reach 21% (small profits rate for businesses with annual turnover under £300,000) from April 2021 and increase the main CT rate to 26% from April 2022 from the current 19% paid by all businesses, after a staggered increase to 21% from April 2020 and then 24% from April 2021. This would raise £23.7bn within five years, according to the funding document, released with the Labour manifesto.
Entrepreneurs’ relief will be abolished so when selling a business capital gains will be taxed at the marginal income tax rate. There will no longer be a separate annual exempt allowance for capital gains, above a de minimis threshold of £1,000.
Generally capital gains will be taxed at the same level as income tax while the lower income tax rate for dividend income will be removed.
A new super rich income tax rate would also be introduced under Labour plans set out in the manifesto, payable by those earning over £125,000 at a rate of 50% as well as a new £80,000 tax threshold where the additional tax rate of 45p tax would kick in. It is over a decade since Labour Chancellor Gordon Brown introduced the 50p rate of tax after the crash; the Conservative LibDem coalition removed the top rate of income tax after it came to power in 2010.
This is expected to raise £11.4bn by 2022-24 tax year. Basic and higher rate tax and national insurance contributions (NICs) will not rise, so Labour would retain the current £50,000 threshold for 40p tax. In addition, the little used married person’s allowance would be abolished. There are also plans for a second homes tax although there is no detail on how this would work.
It will also introduce a new tax for major oil and gas corporations, to be called the Just Transition Tax, designed to offset their environmental impact. The sugar tax will also be extended to milk drinks.
Stamp reserve duty on share sales will be extended, raising £8.8bn. Inheritance tax (IHT) could also be replaced by a lifetime giving tax, effective at the income tax rate for assets worth over £125,000. The current IHT regime allows £325,000 tax-free allowance per person with a £150,000 transferable property relief rate.
The financial transactions tax will be extended and a major crackdown on tax avoidance and evasion is planned, expected to raise £6bn. Tax loopholes used by ‘elite private schools’ will be closed, with VAT payable on private school fees. Business rates will also be reviewed to see whether a land value tax on commercial landlords could be a workable alternative. Meantime, property developers would face new ‘use it or lose it’ taxes on stalled housing developments, and councils will be given powers to tax homes that are empty for over a year.
There will be a root and branch review of business tax reliefs, which it describes as an ‘inefficient system’.
The 115 principal tax reliefs cost the Exchequer over £400bn in 2018-19, although this figure includes the tax free allowance, NICs’ relief and VAT zero rating, which swallows up nearly half the annual tax relief bill. A further £690m was identified as 80 ‘minor reliefs’, HMRC figures show.
The review of corporate tax reliefs would kick off within a month of Labour coming to power and would be conducted by the Treasury with a full report expected within six months. An expert panel would support the review, including representatives from HMRC, the Office of Tax Simplification, National Audit Office, and external stakeholders including trade union representatives, business organisations and tax experts from CIOT, AAT and ICAEW.
In the briefing document, Labour said ‘the system of corporate tax reliefs appears heavily skewed in terms of its regional impact, as well as its impact on the income distribution’.
The recommendation of the report will be ‘operationalised quickly to inform subsequent fiscal events’, Labour said.
Plans to roll out free full-fibre broadband by 2030 for all will be paid for ‘through taxation of multinationals, including tech giants’.
A 5% public sector pay rise is also planned, with a pledge to restore public sector pay to at least pre-financial crisis levels (in real terms), by delivering year-on-year above-inflation pay rises.
Launching the manifesto, Labour leader Jeremy Corbyn said: ‘I accept the opposition of the billionaires, because we will make those at the top pay their fair share of tax to help fund world class public services for you – that’s real change.
‘I accept the hostility of the bad bosses paying poverty pay because we will give Britain a pay rise starting with a real living wage of at least £10 an hour, including for young workers – that’s real change.
‘These policies are fully costed with no increases in VAT or income tax or national insurance for anyone earning less than £80,000. That’s no tax increases for 95% of taxpayers.
‘We’ll deliver real change for the many and not the few.
So as it says in our manifesto, Labour will create one million new green jobs as part of a Green Industrial Revolution.
One million jobs from building wind turbines to insulating homes, from reforesting the Great British countryside to manufacturing new electric vehicles.
Labour also plans to scrap universal credit and provide free personal care for the elderly.