The main political parties are promising to spend big as they battle to win over voters ahead of next week’s general election.
But both the Conservatives and Labour have come under pressure for their spending commitments, with the Institute for Fiscal Studies (IFS) saying that the two main parties are not being “honest” about their spending pledges.
And that poses a key question for voters: what does this mean for my taxes?
The Conservatives have “abandoned plans to deliver sweeping tax cuts”, promising instead not to “gamble with taxpayers’ money”, says The Telegraph.
The Tories have promised to raise the income threshold at which workers start paying national insurance, from the current £8,632 to £9,500 next year, with an “ultimate ambition” of eventually increasing it to £12,500. According to The Telegraph, this should amount to a saving of around £500 per person by the end of the next parliament.
Boris Johnson’s party has also pledged a “triple lock” on personal taxation, meaning that there will be no increase in rates of income tax, national insurance or VAT.
However, the IFS has said that the party has announced no additional local funding other than £500m a year for potholes, meaning authorities will have to rely on council tax increases. The Conservatives’ manifesto “would not be sufficient to meet rising costs and demands over the next parliament even if council tax were increased by 4% a year”, the IFS explained.
Johnson has also ditched a promise he made when he was running for Tory leader to raise the threshold at which people pay 40% income tax from £50,000 to £80,000. Torsten Bell, chief executive of the Resolution Foundation, summed up the Tories’ pledge to the nation as “Brexit is happening, but big tax cuts aren’t”.
Labour has pledged to implement a new “super” income tax rate of 50% on people earning over £125,000, while the threshold for the additional income tax rate of 45% would be lowered from £150,000 to £80,000. According to the Daily Mirror, this would raise “£5.4bn a year by 2023/24”.
Labour would also hike capital gains tax from the current 20% or 28% to the rates of income tax – bringing it to 40% or higher for the richest. The party says this would raise “£14bn a year by 2023/24”.
An additional “£5.2bn a year” would be raised by reversing inheritance tax and bank levy cuts, forcing private school fees to be subject to VAT and introducing a second homes tax, the party says. It has not made any specific pledges on council tax.
Labour will not increase VAT, national insurance or income tax for anyone earning less than £80,000 a year – 95% of earners.
However, it will scrap a tax break for married couples in a move that will impact those earning less. Corbyn conceded that while removing the tax break would impact people’s income by around £250 per year, they would nonetheless benefit from a living wage and “free nursery provision for two to four-year-olds”, the BBC reports.
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The Lib Dems are promising to raise £7bn a year over five years – a total of £35bn – by adding one penny in the pound on income tax and ring-fencing the proceeds for the NHS and social care.
The party is also pledging to introduce a tax rise for those who take the most international flights, while costs would come down for people who take one or two international return flights a year. The air passenger duty rise would help pay for the fight against climate change, the party says.
The Lib Dems have said that the proceeds from any tax increases will be spent fufilling specific manifesto commitments. This is called hypothecation and, according to the BBC, is very out of fashion in the Treasury, “which prefers everything to go into a central pot”.
The party has said that it will allow local authorities to increase council tax by up to 500% when homes are being bought as second homes. It will also abolish the separate capital gains tax-free allowance of £12,000 and tax gains at income tax rates – 20%, 40% and 45%. The latter will particularly affect higher earners. The party would also keep the state pension triple lock.
The IFS said that the Lib Dems were the only party whose pledges “would appear to put debt on a decisively downward path”.