With election day fast approaching, the opinion polls are showing little movement to suggest any party will secure a working majority in the House of Commons. Perhaps in desperation, the parties have been announcing new tax policies to try to win over voters. But these promises fail to address widening income and wealth inequalities.
The richest 10% in the UK own about 44% of all wealth. Meanwhile, the poorest 10% of households in the UK now pay nearly half of their gross income in direct and indirect taxes, while the wealthiest 10% pay an average of just 35% of their income in taxes.
In the 2010-2015 parliament, the coalition government raised taxes by £64.3 billion. It also raised VAT from 17.5% to 20%, which hit the poorest the hardest. The Conservative Party has promised that if elected it will not raise income tax rates, VAT or national insurance contributions. Labour has also promised not to raise the basic rate of income tax, national insurance or VAT. This may appease middle classes but does not reduce the amount of taxation on the less well-off.
No party is, however, offering a wealth tax or anything equivalent to tackle inequality in the UK. The latest Sunday Times Rich List shows that the richest 1,000 people are now estimated to be worth £547 billion, compared to £258 billion in 2009 – an increase of 112%.
While Labour has promised to impose a mansion tax on properties with a value upwards of £2m and hopes to raise £1.2 billion, the tax will make little difference to inequalities.
The Conservatives have promised to raise the threshold for the 40% marginal rate of income tax from about £42,500 to £50,000 by 2020. Labour has promised to raise the top marginal rate of income tax from 45% to 50% on incomes above £150,000, but has ruled out an increase in VAT and national insurance rates. The 50% tax rate might raise an additional £100 million, but they are banking on a tax avoidance clampdown to raise about £7.5 billion.
Lacking in substance
All parties claim they will be tough on tax avoidance, but the policy details lack substance. The coalition government has made small dents in the tax exemptions enjoyed by 115,000 comparatively rich individuals who reside in the UK but for income and capital gains tax purposes are deemed to be domiciled elsewhere. These non-doms enjoy special tax exemptions on their worldwide income. They can just pay sums from £30,000 upwards, depending on the circumstances. Some 64,000 individuals are thought to be claiming these exemptions and Labour says that it will abolish the non-dom status, if elected.
The additional tax revenues from this may be anything between £1 billion and £4 billion, assuming that the non-doms will be good boys and girls and just pay up. None of the parties are making big noise about corporate tax avoidance though Labour would increase the headline rate of corporation tax by 1%.
The Liberal Democrats and Conservatives say that they will raise the annual income tax personal allowances - that is the tax free income before any tax becomes payable - from the present £10,600 to £12,500 by 2020. This would exempt those working for 30 hours per week on the national minimum wage from tax. Labour promised to reintroduce a 10% band of tax for people on low incomes. None of this does anything for 44% of adults whose incomes are too low to pay any income tax.
Cuts to welfare
The poor rely on tax credits and social security benefits, but there is little help there. All three main parties are committed to reducing government expenditure, though there is little detail about what is to be cut. The Conservatives have said they will cut public expenditure by an average of £12 billion a year during the life of the next parliament, but are not saying where the axe will fall. Labour meanwhile has promised to protect the value of tax credits given to working poor, but that guarantee does not apply to all other benefits.
Altogether, there is little to comfort the less well-off. Most will receive little benefit from the tax giveaways, but will be hit by cuts in public expenditure. No party has any strategy for increasing the workers’ share of GDP, which has now shrunk to 50.5%, the lowest ever recorded. It could be increased by paying a living wage of about £7.85 an hour in the regions and £9.15 an hour in London, but no major party is committed to that.
Prem Sikka is director of the Association for Accountancy and Business Affairs (AABA), a not-for-profit organisation.
Authors: The Conversation