Implications of the General Election on Taxes for Citizens
In the lead-up to the 2024 general election, both the Conservative and Labour parties have published their manifestos, outlining their plans for taxes and spending. The UK is facing a challenging fiscal landscape, with rising health spending, a growing defense budget, and the realities of demographic change putting a strain on the country's coffers.
The Conservatives have pledged to implement a 2p cut to National Insurance if they win the election. In contrast, Labour has stated it will not match this pledge. The Conservative party has also introduced a new 'taxact' guarantee, which includes promises not to carry out council tax revaluations, not to increase the number of council tax bands, and to permanently increase the stamp duty threshold for first-time buyers to £425,000.
To address the issue of high inflation, the freeze on income tax thresholds is effectively a 'turbotax' hike by a different name. This means that as prices rise, more and more people are dragged into paying tax. The Conservatives have also promised a new 'triple lock plus' policy to increase pensioners' personal allowance once a year in line with inflation, earnings growth, or 2.5% - whichever is highest.
The next government will face a 'trilemma' and will have to either raise taxes, cut spending, or borrow more. The Institute for Fiscal Studies (IFS) has suggested that both manifestos are more notable for what they don't say than what they do, and that the trade-offs of tax cuts and freezes are not made explicit. The IFS has also accused both parties of a 'conspiracy of silence' regarding the high level of debt and underfunded public services.
Transitions to net zero will also add costs to the UK's budget. The Conservatives have not announced any major reforms on inheritance tax, while Labour has pledged to crack down on the use of offshore trusts to shield assets but has not announced any major reforms on inheritance tax either. The state pension cost an estimated £125 billion in the 2023/2024 tax year.
Labour has pledged to end tax breaks for private schools, which could potentially lead to fees rising by up to 20%, on top of any inflation-related hikes. Interest rates are at a sixteen-year high, which has added considerably to the debt burden. Several parties disclose financing plans in their manifestos, but often lack full, detailed financing models.
Despite the challenges, tax receipts will continue to soar due to fiscal drag, regardless of who becomes the next Prime Minister. IHT receipts continue to surge, with HMRC collecting £1.4 billion in the first two months of the 2024/2025 tax year alone. The IFS has warned that we will be 'voting in a knowledge vacuum' come 4 July, as both party's manifestos do not address how the government plans to fund various issues such as rising health spending, defense budget growth, demographic change, and transitioning to net zero.
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