The largest single item, accounting for around 40% of the increased tax take, comes from raising the corporation tax rate from 20% to 26% over the next parliament. Further revenues are to be raised from lowering the threshold for the 45% tax band to those earning over £80,000 and reintroducing the 50% top rate for incomes above £123,000. Taxes would also be raised through various measures including an excess pay levy and a “Robin Hood tax” on trading derivatives and other financial products. Overall, this major increase in public expenditure would be funded by tax rises on the wealthiest.
The projected changes in tax rates may appear relatively modest; the corporate tax rate would remain low by developed country standards and would still be below levels in 2010. Nevertheless, the projected rise in tax take is large – in particular, receipts from corporation tax would almost double over the lifetime of the next parliament.
The questions here are how far it is plausible to raise these revenues from groups that are best placed to avoid them through various means. The manifesto makes some allowance for slippage here, allowing an offset of £3.7 billion to reflect uncertainties and potential behavioural change. On the other hand, the costings also project a further £6.5 billion to be raised from an ambitious programme to tackle tax avoidance and evasion (this is roughly the same amount projected to be raised from high top rate income taxes).
Major uncertainties
There are major uncertainties over whether these tax hikes would be able to raise the projected sums – the Institute for Fiscal Studies has indicated that it is possible, but revenues could also fall a long way short. In part, this reflects uncertainty over possible tax avoidance. More widely, it would also depend on the growth of these incomes.
The top 1% of taxpayers already accounts for over a quarter of income tax receipts, partly reflecting their relatively strong income growth. Corporate tax receipts have grown strongly in recent years with profit growth, although their share of total tax receipts remains below levels seen before the 2007-08 financial crisis.
