What will the general election mean for your taxes?

The Institute for Fiscal Studies has accused the Conservatives and Labour of a “conspiracy of silence”. Will your tax bill go up, no matter who wins the election?

Chancellor Jeremy Hunt and shadow chancellor Rachel Reeves walking through the Houses of Parliament.
Could Rachel Reeves replace Jeremy Hunt as chancellor? As the 4 July polling day nears, we take a closer look at the tax policies announced by Labour and the Conservatives
(Image credit: Getty Images)

Politicians like to hand out sweeteners as voters head to the ballot box – and taxes are one way of doing it. But they also have to find the money to fund their spending pledges once they are elected. 

Both the Conservatives and Labour have published their manifestos in recent weeks, promising to freeze or cut a number of different taxes. This has prompted the Institute for Fiscal Studies (IFS) to accuse both parties of a “conspiracy of silence”. 

The independent think tank warns that the next government will have to confront the highest level of debt in more than 60 years, not to mention underfunded public services. “These raw facts are largely ignored by the two main parties in their manifestos,” says IFS director Paul Johnson. 

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Against this backdrop, he argues that the next government will face a “trilemma”. It can either raise taxes by more than it has said, cut spending, or borrow more. 

The reality is that taxes will rise no matter who gets into Number 10 – even if the next Prime Minister chooses one of the other three routes highlighted by the IFS. Tax receipts will continue to soar thanks to the effects of fiscal drag alone.

As the 4 July polling day nears, we take a closer look at the tax pledges that have been announced so far. What do the manifestos reveal and what are they hiding?

Freeze on income tax thresholds

If you were hoping this week's election would thaw frozen income tax thresholds, you were sadly mistaken. Both parties have confirmed they will keep these at their current levels until 2028. 

Personal tax thresholds have been frozen since 2021, when Rishi Sunak (then chancellor) announced the measure in his Spring Budget. The move was an attempt to balance the state’s books after an intense period of government spending during the Covid pandemic. 

Sunak initially froze thresholds for a period of up to four years, but chancellor Jeremy Hunt extended the freeze until 2028 in his Autumn Statement in 2022. He has since confirmed that this freeze will not be lifted, if the Conservatives win the upcoming general election. 

The good news for taxpayers is that neither party is planning to increase income tax rates either – but with inflation having been so high in recent years, the threshold freeze is effectively a tax hike by a different name. 

The Office for Budget Responsibility (OBR) highlights the widely-felt impact of fiscal drag: It says: “By 2028-29, there are expected to be around 3.7 million more taxpayers overall, 2.7 million more higher-rate taxpayers, and 600,000 more additional-rate taxpayers than if all allowances and thresholds had been indexed to inflation, and the additional rate kept at £150,000.”

National Insurance cuts

While taxpayers will be disheartened that income tax thresholds are set to remain frozen, the Conservatives have promised to implement a 2p National Insurance cut, if they win the election. 

Hunt has already cut the levy twice in the space of six months. He reduced it from 12% to 10% in last year’s Autumn Statement, before cutting it to 8% in his Spring Budget on 6 March

Labour has said it will not match this pledge, and has previously argued that National Insurance cuts endanger the state pension. National Insurance contributions are used to help fund this expensive benefit for retirees. The state pension cost an estimated £125 billion in the 2023/2024 tax year.

Tax on pensions

The grey vote is a valuable thing – and Conservative politicians in particular have been working hard to charm pensioners in recent weeks. They have promised a new “triple lock plus" policy, which will increase pensioners’ personal allowance once a year in line with inflation, earnings growth or 2.5% – whichever is highest.

Sunak said this measure would ensure pensioners never had to pay tax on their state pension, but analysis from former pensions minister Steve Webb suggests the issue is actually more complex than Sunak allows. 

Inheritance tax

Neither party has announced any major reforms on inheritance tax (IHT). IHT receipts continue to surge after reaching a record-breaking £7.5 billion last tax year. The latest data shows HMRC collected £1.4 billion in the first two months of the 2024/2025 tax year alone.

“Inheritance Tax has been well and truly left out in the cold, after occupying the heated centre of political debate only a year ago,” says Jason Hollands, managing director at Evelyn Partners. 

“After strong indications that the Prime Minister and Chancellor were looking to cut or even abolish it, IHT reform was unexpectedly left out of the Autumn Statement, quietly dropped from the Spring Budget and now forgotten about come the Tory manifesto.”

Labour was also tight lipped on IHT in its manifesto, only pledging to crack down on the use of offshore trusts to shield assets.

VAT freeze

Both the Conservatives and Labour have pledged to keep VAT frozen at 20%. The only change to current measures is Labour’s plan to end tax breaks for private schools

Private schools are currently exempt from paying VAT, which helps keep costs down for parents. However, a change in government could result in fees rising by up to 20%, on top of any inflation-related hikes. 

Labour leader Keir Starmer said the measure was “not an attack on private schools”, but part of a plan to recruit 6,500 new teachers into the struggling state sector. 

Property taxes

The Conservatives have introduced a new “family home tax guarantee”, which consists of three pledges on property taxes.

Firstly, the party will not carry out any council tax revaluations, nor will it increase the number of council tax bands. Critics of the current system argue it is unfair, as the amount of tax you pay isn’t always proportionate to the value of your home.

Secondly, the party has promised to retain private residence relief. This measure means homeowners don’t currently have to pay capital gains tax when they sell their main home.

Finally, the Conservatives have promised not to raise stamp duty. What's more, they plan to permanently increase the stamp duty threshold for first-time buyers to £425,000.

Labour has also announced a series of non-tax related measures to help first-time buyers, which we explore in a separate piece: “What does the Labour manifesto say about property?” 

“Conspiracy of silence”: what the manifestos aren’t saying about tax

The IFS has suggested both manifestos are more notable for what they don’t say than what they do. While tax cuts and freezes sound tempting, they lose some of their appeal when you consider the trade-offs.

Johnson highlights several structural changes that are playing out at the moment – all of which will put a strain on the UK’s coffers. Firstly, interest rates are at a sixteen-year high, which has added considerably to the debt burden. 

On top of this, the UK is staring down the barrel of “rising health spending, a defence budget which for the first time in decades will likely grow rather than shrink, and the reality of demographic change”. Johnson also points to the costs associated with transitioning to net zero. 

While the promise of tax freezes and cuts will be music to the electorate’s ear, both party’s manifestos are short-sighted insofar as they don’t make the trade-offs explicit. How does the government plan to fund these issues if not by raising taxes? 

As a result, we will be “voting in a knowledge vacuum” come 4 July, the IFS has said. 

Katie Williams
Staff Writer

Katie Williams has a background in investment writing and is interested in everything to do with personal finance, investments, and financial news. Before joining the MoneyWeek team, Katie worked as an investment content specialist at Invesco EMEA, a global asset management firm, which she joined as a graduate in 2019. While there, she enjoyed translating complex topics into “easy to understand” stories. She studied English at the University of Cambridge and loves reading, writing and going to the theatre.