Labor to raise corporation tax to 26%

On corporation tax, the rate will increase by 7% within three years to 26%, with the first 2% rise scheduled for April 2020, when a CT rate of 21% would begin.

Labor has said it will ‘phase out corporation tax cuts’ to reach 21% (small profit rate for businesses with an annual turnover of less than £300,000) from April 2021 and would increase the main CT rate to 26% from April 2022 from the current 19% paid by all companies, after a staggered increase to 21% from April 2020 and then to 24% from from April 2021. This would raise £23.7bn over the next five years, according to the funding document released with Labour’s manifesto.

Relief for entrepreneurs will be removed, so when selling a business, capital gains will be taxed at the marginal rate of income tax. 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 tax rate for dividend income will be removed.

A new super rich income tax rate would also be introduced as part of the Labor plans set out in the manifesto, payable by those earning over £125,000 at a rate of 50% as well as a new income threshold. £80,000 tax where the additional 45p tax rate would come into play. It has been over a decade since Labor Chancellor Gordon Brown introduced the 50p tax rate after the crash; the conservative LibDem coalition scrapped the top income tax rate after coming to power in 2010.

It is expected to bring in £11.4billion by the 2022-24 tax year. Basic and top tax and National Insurance (NIC) contributions will not increase, so Labor would retain the current £50,000 threshold for the 40p tax. In addition, the little-used married person’s allowance would be abolished. There are also plans for a tax on second homes although there are no details on how this would work.

It will also introduce a new tax for big oil and gas companies, called the Just Transition Tax, designed to offset their environmental impact. The sugar tax will also be extended to dairy drinks.

The stamp reserve duty on share sales will be extended, raising £8.8bn. Inheritance tax (IHT) could also be replaced by a lifetime tax, applicable at the rate of income tax for assets worth more than £125,000. The current IHT scheme allows for a tax-free allowance of £325,000 per person with a transferable property relief rate of £150,000.

The Financial Transactions Tax will be extended and a major crackdown on tax avoidance and evasion is planned, which is expected to raise £6billion. Tax loopholes used by ‘elite private schools’ will be removed, with VAT payable on private tuition fees. Business rates will also be reviewed to see if a land value tax for commercial owners could be a viable alternative. Meanwhile, property developers would face new ‘use or lose’ taxes on stalled property developments, and councils will have the power to tax empty homes for more than a year.

There will be a top-to-bottom review of corporate tax breaks, which he describes as an “ineffective system”.

The top 115 tax breaks cost the Exchequer more than £400billion in 2018-19, although that figure includes tax-free abatement, NIC relief and zero-rate VAT, which gobbles up almost half of the annual tax relief bill. A further 690 million pounds have been identified as 80 “minor reliefs”, according to HMRC figures.

The review of the corporate tax cuts would begin within a month of Labor taking power and would be conducted by the Treasury with a full report expected within six months. A group of experts would support the review, comprising representatives from HMRC, the Tax Simplification Office, the National Audit Office and external stakeholders including representatives from trade unions, business organizations and CIOT tax experts , AAT and ICAEW.

In the briefing paper, the Labor Party said that “the system of corporate tax relief appears to be heavily biased in terms of regional impact, as well as impact on income distribution”.

The report’s recommendation will be “operationalized quickly to inform subsequent tax events”, Labor said.

Plans to roll out full fiber broadband free by 2030 for all will be paid for “by taxation of multinationals, including tech giants”.

A 5% increase in public sector wages is also planned, with a commitment to restore public sector wages to at least pre-financial crisis levels (in real terms), by offering higher annual wage increases to inflation.

Launching the manifesto, Labor leader Jeremy Corbyn said: ‘I accept the opposition of billionaires because we will ensure those at the top pay their fair share of tax to help you fund public services of world class – it’s a real change”.

“I accept the hostility of bad bosses who pay poverty wages because we will give Britain a pay rise starting with a real living wage of at least £10 an hour, including for young workers – this is a real change.

“These policies are fully costed with no increase in VAT, income tax or National Insurance for anyone earning less than £80,000. It is not a tax increase for 95% of taxpayers.

“We will bring about real change for the many and not for the few.

So, as our manifesto says, Labor will create a million new green jobs as part of a green industrial revolution.

A million jobs, from building wind turbines to insulating homes, from reforesting the UK countryside to making new electric vehicles.

Labor also plans to scrap Universal Credit and provide free personal care for the elderly.

Labor review of corporate tax breaks

Luisa D. Fuller