We would say that judging by the published manifestos of the three main political parties, the days of tempting voters by promises of cutting income tax and its alter ego, National Insurance are over:
- From the Conservatives – a repeat of the 2015 manifesto promise of a personal allowance of£12,500 and a higher rate income tax threshold of £50,000 (outside Scotland) by 2020. Given how inflation is picking up, that pledge seems to mean little more than keeping pace with prices – which is already built into the legislation. 2015’s manifesto promises to freeze rates for income tax and national insurance have disappeared, although there are references to “low taxes”. Unsurprising, given the problems Mr Hammond encountered with his March Budget.
- From Labour – its manifesto promises no personal national insurance increases and no income tax increases for those with income of up to £80,000. Beyond that, Labour wants to apply a 45% rate (this currently starts at £150,000). We would also see the return of a 50% top rate of tax, beginning at £123,000 – this odd-looking starting point is driven by the fact that this is the income level at which all the personal allowance is lost.
- From Liberal Democrats – a simple approach in their manifesto which is an immediate 1% increase in basic, higher and additional rates of tax. However, the Lib Dems suggest that in the longer term this would be replaced by “a dedicated health and care tax…possibly based on a reform of national insurance contributions”.
According to the Office for Budget Responsibility’s March 2017 estimates, Income tax and National Insurance will account for about 44% of all tax revenue in 2017/18. This makes reductions expensive and increases valuable – the Lib Dems’ extra 1% would yield £6 billion a year.
With even the Conservatives now talking about not eliminating the Budget deficit until 2025, the hard truth is that, regardless of political hue, no government can afford income tax giveaways.
If you want to see your income tax bill reduce, you need to elect for more financial planning rather than any particular political party! Contact us for Tax planning, Investment and Savings advice.
Please Note: The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.
