Income tax and national insurance contributions (NICs) – the income tax that dare not speak its name – are major revenue raisers for governments of all hues. Together they will produce £305bn for the Exchequer in 2017/18, 44% of all tax revenue, according to the Office for Budget Responsibility’s March 2017 estimates.
That proportion explains when economists were so critical of the Conservatives’ pledge at the 2015 election to freeze rates for income tax and NICs (and VAT). Locking down the major source of government cash flow is overly-constraining, as Mr Hammond so recently discovered – possibly at the cost of his post-election occupancy of 11 Downing Street.
For the 2017 election, the Conservatives have made no fresh manifesto promises on either tax. With the Taylor review on modern employment practices due to report soon, there is an understandable reluctance to revisit the spring Budget’s class 4 problems. On income tax, the oft-repeated goals of a £12,500 personal allowance and £50,000 higher rate tax threshold “by 2020” (at least for non-Scots) remain, but that is all. Keeping tax “as low as possible” receives several mentions, but who would promise anything different?
Labour does not, at least for the roughly 95% of income taxpayers with income under £80,000. The unlucky 5% – about 1.5 million – would face a 45% band starting at £80,000 (rather than the current £150,000) and a new 50% top rate beginning at £123,000. That odd number is presumably to avoid hitting the band between £100,000 and £123,000 where the phasing out of the personal allowance increases the effective marginal tax rate by a half.
In its “Funding Britain’s Future” document, separate from the manifesto, Labour says these changes would raise £6.4bn a year, less an unspecified adjustment for “… the inherent difficulty of forecast receipts from new taxes, bands and thresholds”. The manifesto says “…. everyone will be protected from any increase in personal National Insurance contributions”, the use of the word ‘personal’ suggesting that employers may not be so fortunate.
The Liberal Democrats
The Liberal Democrat approach to raising income tax is much simpler. Its manifesto promises “An immediate 1p rise on the basic, higher and additional rates of Income Tax” to raise £6bn for the NHS and social care. The party would also scrap the marriage allowance – an arguably regressive move that would only hit basic rate taxpaying couples. The manifesto’s only reference to NICs is an oblique one about funding health and social care: “In the longer term and as a replacement for the 1p Income Tax rise, [the government would] commission the development of a dedicated health and care tax on the basis of wide consultation, possibly based on a reform of National Insurance contributions”.
It is noteworthy that the manifestos all shy away from addressing the complexities which have accumulated in the UK income tax regime through the efforts of both Labour and Conservative chancellors. Neither do any of the parties risk mentioning the logic of combining income tax and NICs instead of maintaining the current make-believe two tier system. But there is always hope – what is not said in a manifesto is often more significant that what is said.