Our recent report calling for greater tax clarity has caused a stir in the media, with letters from BDO appearing in the Financial Times, The Times. An editorial and article appearing in the Daily Mail and a number of broadcast appearances demonstrates that this is a key issue for businesses and the electorate. There is a lot of talk about spending cuts, there is not nearly enough talk about potential tax rises. Hard decisions need to be made about the best way to address the scale of the Government’s £175 billion fiscal deficit.
In my last Talk Shop I discussed some potential choices that the Conservative party might take. In this piece I lay out some ideas that the Labour party might consider.
Our prudent assumption is that an additional £25 billion tax revenues will be needed for Treasury coffers, tax increases of £9 billion have been identified as being acceptable to all parties. These are:
Total increases predicted for all parties: £9bn
The extra £16 billion necessary has been split in our report consistent with the background poltical policy thinking (see chart below).
Labour’s likely intentions should be easier to predict as it has set out its fiscal priorities in the 2009 Budget Report. We consider, however, that it is inevitable that the figures already announced by the Treasury will have to be supplemented with additional and far reaching tax raising measures for the next Parliament.
The Chancellor has already introduced restrictions on the pension contributions tax relief available to taxpayers earning in excess of £150,000 but this is only estimated to raise an additional £0.2bn.Abolishing the relief on pensions contributions for all taxpayers would see this increase to a much more substantial £20bn. However political considerations would almost certainly prevail, meaning that a more realistic restriction could be applied only to higher-rate taxpayers (ie those earning £44,000 and above) which would raise £6bn.
Another well-tried instrument in the Labour tax repertoire has been National Insurance increases, applied to employees and employers. Raising contributions for both by one per cent would generate an additional £10bn.
The combined impact of both measures could realise a total of £16bn in additional revenue.
In my next Talk Shop I will discuss the policies of the Lib Dems.
If you would like a full copy of the report or further information please have a look at the micro-site: http://www.breakingthesilence.bdo.uk.com/