Labour’s tax proposals and what they mean for your money

Nimesh Shah, partner at accountants and tax consultants Blick Rothenberg, outlines the Labour Party's tax proposals, and explains how they might affect you.

Jeremy Corbyn with the Labour Party manifesto  © Leon Neal/Getty Images

See also

The Conservatives' tax proposals and how they affect you

The Lib Dems' tax proposals: how they will affect you

It will come as no surprise to learn that Labour's proposals include an increase in taxes on high earners and big businesses, but small businesses and entrepreneurs will also find life much tougher.

The Labour manifesto includes detailed costings, showing additional revenue raising measures totalling £82.9bn by 2023/24. While in overall scope this is comparable to the Liberal Democrats' proposals to raise £63bn by 2024/25, the balance is very different.

Almost all of the Labour Party's yield comes from the wealthiest 10% of taxpayers (those earning over £80,000) and from business. By contrast, the Liberal Democrats would raise £7.7bn by increasing income tax by 1p for everybody, and would also have a "Remain bonus" of £14.3bn from staying in the EU.

Taxes on big business

Corporate taxes would increase significantly, from their current level of 19% to 21% from April 2020, rising to 26% by 2023. A "small profits rate" would be retained at 19% (rising to 21% by 2023), but this would apply only to firms with turnover below £300,000 and with profits at a much lower level.

Other measures, such as the efficiency review of corporate tax reliefs (raising £4.3bn) and abolishing research and development credits for large businesses (£4bn), would also increase taxes on business.

The method for taxing multinationals is to change to a formula-based apportionment ("unitary tax") which is estimated to raise £6.3bn. However, unitary tax has been discussed for many years, and while in principle it may be a better way of taxing the largest global businesses, in practice it will be fearsomely complex and is likely to require international agreement from the UK's 100 plus treaty partners.

The financial transactions tax (£8.8bn) will be deeply unpopular with the banking sector and will also impose significant compliance burdens on companies which manage their commercial risks using financial instruments.

Small business and entrepreneurs

For entrepreneurs, this will be a much harsher landscape. Entrepreneurs' relief, which gives a 10% rate of capital gains tax on up to £10m raised from selling a business, will be abolished. Combined with the alignment of income tax and capital gains tax rates, this means that selling a business is likely to face a 50% tax rate a five-fold increase, which may mean that some decide not to set up a business at all or to set it up outside the UK.

An owner of a relatively small business with profits of £400,000, paying corporation tax and then paying out all of the profits as a dividend, will see an increase in his or her tax bill from £199,000 to £252,000 (from the higher rate of corporation tax and the higher rate on dividends). That extra £53,000 would have paid the salary and overheads of an employee will businesses be discouraged from expanding their workforce?

Tax avoidance

And finally, the expected yield of £6.2bn from the "fair tax programme", tackling tax avoidance and evasion, is £0.5bn more than the Liberal Democrats' estimate of £5.7bn and is likely to be equally difficult to collect.

Overall, a large majority of the tax raising measures will come from UK businesses and entrepreneurs. Whilst many of the proposals will be popular with the electorate, the likely impact on jobs and the wider economy is hard to quantify, but is unlikely to be positive.

Tax calculator: see how each party's plans affect you

Just type your salary into the calculator below from leading accounting and tax advisory firm Blick Rothenberg to see how much better or worse off you'll be under each party's plans.

Recommended

What does Rishi Sunak have in store for investors this Wednesday?
Budget

What does Rishi Sunak have in store for investors this Wednesday?

Rishi Sunak is unveiling his spending plans for the economy this week. John Stepek analyses areas which may be most hit by the budget.
25 Oct 2021
Why we should scrap the Budget
Budget

Why we should scrap the Budget

The yearly Budget, big set-piece of British politics, encourages the very worst from the government, says Matthew Lynn.
24 Oct 2021
Green finance is set to be the most powerful financial repression tool yet
Bonds

Green finance is set to be the most powerful financial repression tool yet

The government has launched its “green savings bond” that offers investors just 0.65%. But that pitiful return is in many ways the point of “green” fi…
22 Oct 2021
Equities are not a good inflation hedge
Economy

Equities are not a good inflation hedge

Institutional investors are definitely now worried about inflation. But they're not yet worried enough to flee to cash, says John Stepek
22 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
Emerging markets: the Brics never lived up to their promise – but is now the time to buy?
Emerging markets

Emerging markets: the Brics never lived up to their promise – but is now the time to buy?

Twenty years ago hopes were high for Brazil, Russia, India and China – the “Brics” emerging-market economies. But only China has beaten expectations. …
18 Oct 2021