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Households set for major tax shake-up following election

3rd Jul 24 3:09 pm

Tax is a key battleground when it comes to this week’s General Election, as the Conservatives have regularly painted Labour as the party that’s set to cost households thousands more in taxes on social media.

While Labour are indeed likely to come with a higher tax burden than the Conservatives, this seems to be greatly exaggerated, as both Labour and the Conservatives have come under fire by think tank the Institute for Fiscal Studies for not going far enough when it comes to raising money.

Unlike the big two parties, the Liberal Democrats have looked to go further in terms of both taxation and spending, as the party has notably looked to make significant alterations to Capital Gains Taxes to raise money.

Finance expert, RIFT, cuts through the rhetoric by comparing the tax offerings of the three major parties.

Income Tax and VAT

Both Labour and the Conservatives have pledged to hold income taxes and VAT at their current rates.

While this represents a continuation of normality, it does mean that in real terms people will end up paying more, as incomes rise and inflation takes effect.If income tax is held, some 3.7 million more people are set to pay tax by April 2029, while 2.7 million would have to pay a higher rate of income tax, Hargreaves Lansdown estimated.

National Insurance

The Conservatives pledged to cut 2p off National Insurance by April 2027, which amounts to a tax cut of £1,350 for the average worker earning £35,000 annually.

Meanwhile, the party pledged to abolish the main rate of self-employed National Insurance by the end of the parliament.

Labour instead only pledged to retain current levels of National Insurance.

Capital Gains Tax

The Liberal Democrats are most open to upping taxes, and that’s underlined by the ambition to alter Capital Gains Tax thresholds.

The party wants a new rate of 40% on gains between £50,000 and £100,000, as well as 45% over £100,000. Between £5,000 and £50,000, they would be taxed at 20%. This would mark a major increase, as currently the highest rate of CGT is 24%.

While the other parties haven’t pledged to raise Capital Gains Tax, Labour leader Keir Starmer has refused to rule out an increase.

Energy bills

Rishi Sunak has continued to express cynicism towards spending on green energy, as he pledged to lower green levies on energy bills, which is money used to finance renewable energy and reduce emissions. He also pledged to retain the energy cap.

Both Labour and the Conservatives have pledged to reform standing charges, a fixed amount people pay on their energy bill every day, with both saying they are currently too high.

Labour are focusing on reducing energy bills by upgrading homes, as the party pledged to improve five million homes in five years via a National Warm Homes Plan, as well as generate more clean energy. The Lib Dems similarly pledged to introduce a 10-year emergency homes upgrade programme which would focus on making homes zero-carbon, warmer and cheaper to heat.

Compared to the Tories therefore, both Labour and the Lib Dems seem keener on saving households money by improving the energy efficiency of homes, rather than by lowering taxes.

Private schools tax raid

As it stands private schools in the UK are VAT exempt, meaning they do not have to charge 20% VAT on the school fees parents pay. Labour has pledged to end this VAT exemption and business rates relief, saying it intends to spend this cash investment into state schools.

The shadow education secretary Bridget Phillipson said the measure is justified because private schools have priced out the middle classes.

Pensions

Both Labour and the Liberal Democrats have pledged to protect the state pension triple lock so it rises in line with inflation, wages or 2.5% – whichever is highest.

The Conservatives have gone a step further by pledging to raise the minimum amount a pensioner receives before paying income tax. It seems therefore that retirees could be better off under the Tories when it comes to their tax burden.

Childcare

Labour are looking to expand childcare with 3,000 new primary school-based nurseries and free breakfast clubs at every primary school in England.

The Conservatives would give 30 hours of free childcare to working parents with children aged between nine months and five years from September 2025. They would also change the rules on child benefits so families keep all of it until the household’s total income exceeds £120,000

The Liberal Democrats broke from the main two by scrapping the benefit cap and removing the two-child limit. Meanwhile, the party pledged to double statutory maternity and shared parental pay to £350 a week so that parents could be better off under the party.

Housing & first-time buyers

First-time buyers are set to pay more stamp duty under Labour, as the Conservatives pledged to abolish the tax on homes worth up to 425,000.

Both parties are looking to encourage high loan-to-value lending by launching a Help to Buy-style scheme, with Labour’s version being dubbed ‘Freedom to Buy’.

Labour has looked to give domestic buyers preferential treatment using property taxes, as the party pledged to increase the stamp duty surcharge paid by non-UK residents, which currently stands at 2%.

Minimum wage and workers’ rights

Labour has pledged to turn the minimum wage into a real living wage, signalling that some of the nation’s poorest could be better off under the party.

Meanwhile, the age bands would be scrapped, which currently means that young adults have a lower minimum wage. The party pledged to ban “exploitative” zero-hours contracts and the practice of “fire and rehire”, as well as give workers more rights from the first day in a job.

Bradley Post, MD of RIFT, said, “Looking beyond the election, the tax burden is likely to be the lowest under the Conservatives, with the help of a cut to National Insurance, as well as by raising the minimum amount pensioners receive before paying income tax. However, in most instances, the party sits in the same place as Labour, for example on income taxes and VAT.

Labour are using non-standard means to raise taxes, with the elimination of private schools VAT relief and by probing foreign buyers. However, these measures are unlikely to give the party much spending power if it wins the election.

The Liberal Democrats’ focus on higher Capital Gains Taxes would represent a far higher burden for those with assets, which likely reflects how the third party feels more able to take risks than the big two parties.”

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