Tax plans lack strategy, says think tank

There is a lack a coherent strategy across the taxation plans of the main political parties that would further complicate the tax system, the Institute for Fiscal Studies (IFS) has said.

In the run up to the general election, the Conservatives, Labour and the Liberal Democrats have all proposed different plans for taxation in their manifestos. The Conservatives want to make small cuts to taxes, Labour plan to raise taxes while the Liberal Democrats want to increase some taxes and lower others.

However, the IFS has criticised the plans for showing "little evidence of any coherent strategy".

The report covers 3 key areas of taxation:

Income tax

The report says that party plans do little to tackle the real problems of the taxation system. The number of higher rate taxpayers will grow irrespective of Conservative plans, 44% of adults will not benefit from personal allowance increases, and a 50% additional tax rate would only raise around £100 million.

  • The Conservatives want to raise the personal allowance to £12,500 by 2020 and increase the higher rate threshold to £50,000
  • Labour plans to abolish the transferable personal allowance between married couples, raise the additional tax rate to 50% and introduce a new 10% starting rate of tax
  • The Liberal Democrats want a £12,500 personal allowance by 2020.

Pension contributions tax

Both the Conservatives and Labour want to increase income tax on pension contributions. They would do this by reducing the value of pension tax relief for additional rate taxpayers, as well lowering the value of coalition-era pension tax relief.

According to the IFS, these are "short term, ad hoc" changes that could discourage higher earners from increasing their salaries.

Housing taxation

The IFS claims that none of the parties' housing taxation plans will combat the problems with council tax and stamp duty, and will do nothing to increase supply in the market.

  • The Conservatives want to raise the inheritance tax threshold to £1 million through a new transferable 'residence allowance' worth £175,000 per person
  • Labour have promised to introduce a stamp duty exemption for first-time buyers and a 'mansion tax' on properties worth more than £2 million
  • The Liberal Democrats also propose a mansion tax of £3,000 on houses worth between £2-3 million.

James Browne, a senior research economist at the IFS, said:

"We have seen little coherent reform to the tax system for many years and the parties' manifestos promise little going forward. Damage has been done, and more is being proposed, to pension taxation, while proposals on the taxation of housing lack coherence."

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