Make tax boring again!
There’s a smooth inverse correlation between how likely a party is to become the next government and the radicalism of its manifesto tax plans, says Tim Sarson
“I suppose I ought to write something about tax in the manifestos,” I thought to myself. It would be odd not to in the week directly after the main manifesto launches. But what? This is strange general election. The policy debate is shadow boxing. Tax is topping the news agenda, but it’s all suppositions about hypothetical taxes: what the main two parties might possibly have to do if they want the numbers to add up. Things that aren’t in their policy programme but aren’t completely ruled out. In other words we’re talking vibes.
Vibes are all well and good but what about the substance? What are the parties telling us about their plans for power?
The first thing to note is that the fun is outside the big two parties. There’s a smooth inverse correlation between how likely a party is to become the next government and the radicalism of its manifesto tax plans. Using a statistical technique called finger-in-air regression I can say to a high confidence interval that the Labour manifesto is the most (small-c) conservative, followed by the Conservatives, then the Liberal Democrats and finally, for similar reasons but in opposite directions, those of the Greens and Reform.
They may have only a small chance of implementing them, but the minor parties’ tax plans are interesting because they project a world view in a way that Labour in particular are hampered from doing as they tiptoe to the finishing line. They’re also sometimes an insight into the sorts of measures the main parties might love to introduce if they could, but don’t dare to.
Reform’s tax policies are the stuff of dreams for many in the Conservative party, if the government had enough cash. Re-banding of income tax rates, slashing taxes on energy and fuel, abolishing inheritance tax on estates below £2m. The Greens pick up where Jeremy Corbyn left off in 2019 and add a few more leftist tax proposals including an eye-catching progressive wealth tax and an economy wide carbon tax, albeit one that, as others have pointed out, accidentally slashes fuel duty. The Lib Dems do what Labour might well wish to do in equalising Capital Gains Tax (CGT) rates with income tax, but anyone actually in government who pre-announces a CGT rate rise is inviting a wholly predictable surge in disposals just before the new rate comes in. Parts of the rest of the Lib Dem tax manifesto are a fun romp around the social democratic tax policy theme park.
So the smaller parties get to have some fun but the bigger ones are restricted to offering rather more neutral fare. One reason for this is the straitjacket of the current fiscal rules, notably the requirement for debt to be falling as a proportion of GDP at the end of the forecast period. It makes things very hard for a party that wants to promise either tax giveaways or massive ramp-ups in spending. The other is more pragmatic. Sweeping tax reforms or wholly new taxes are complicated and expensive to introduce. They also risk being picked apart by pundits. Theresa May’s experience with the social care funding proposals in 2017 casts a long shadow.
Still, there are a few interesting nuggets that open a portal into the minds of the two main parties. They deploy their fiscal carrots and sticks in different ways. The Labour manifesto is tax sticks for other people, spending carrots for you, the voter. The Conservative manifesto is tax carrots for you, spending cuts sticks for other people.
Several Labour measures are about fairness, though they could less charitably be seen as raids on “out groups”, people or businesses that are not the core target voter. The school fee VAT policy, the reforms to carried interest, further windfall taxes on oil and gas, further reform of non-dom taxation, reform of business rates, all aim in part to level the playing field between different groups of taxpayers or consumers. The Conservatives’ more noteworthy policies cut the tax bill for important segments of the electorate: house buyers, pensioners, high paid employees facing distortive marginal rates, and the self-employed. The sticks strike elsewhere, for example, in welfare spending.
But still, this is all movement within the margins. The absolute fiscal differences between the main parties are small, and the tax changes on offer from Labour fall a long way short of a major overhaul. That may be calculated to reassure. The big picture action is elsewhere. Labour clearly don’t see the tax system as a major lever for big national priorities like levelling up or net zero. Instead, they are focused on making tax boring again. Perhaps that’s where it belongs.