Main party manifestos
The Conservatives
The Conservative manifesto bears a striking resemblance to the most recent budget and Autumn Statement, which comprised a series of tax cuts financed by a future promise to reduce spending.
The commitment to lowering National Insurance Contributions (NICs) is a continuation of the government’s recent series of tax cuts. These reductions have so far increased the borrowing forecast by £21.4 billion for 2028-29, with the proposed cuts contributing an additional £11.7 billion.
Despite these promises, the overall increase in income from the NICs rate reductions would not compensate for the decrease in take-home pay resulting from the tax threshold freezes implemented since 2022-23. The threshold freezes are expected to generate just over £40 billion by 2028-29.
As NICs is a tax on the working population, lowering it encourages increased work. The fiscal watchdog has previously determined that these cuts will slightly stimulate demand in the short term before boosting employment supply in the future, leading to minimal inflation implications and an overall increase in potential GDP of approximately 0.4% by 2028-29.
The manifesto indicates that these tax reductions will be funded by welfare spending cuts, which are projected to save £12 billion by 2029-30, and a crackdown on tax evasion, expected to generate £6 billion.
Labour
The Labour Manifesto offered few surprises. It is proposing modest tax increases to top-up day-to-day government spending and deliver a small boost to public investment. Labour has proposed a £4.8 billion increase in public services at the core of its manifesto. The lift is more than funded by £8.6 billion of tax rises (which includes the windfall tax on oil and gas companies).
Introducing VAT taxation on fees and business rates for private schools are expected to raise £1.5 billion. Costing new taxes is always hard and in this case the uncertainty arises from the scale of the passthrough to fees.
- Some schools say they’ll have to cut bursary programs that help low-income families.
- More than a third of pupils at private schools receive income-based bursaries, according to the Independent Schools Council, which represents just over half of all private schools.
Further measures to tighten the non-domicile (non-dom) tax regime, as well as introducing avoidance measures are projected to bring in £5.2 billion.
However, the risk is that the revenue generated is far smaller than anticipated. The non-dom tax base is mobile and inventive tax-planning might cushion its losses. Relying on tax avoidance to raise funds is unpredictable. The Office for Budget Responsibility has found that it has tended to overestimate the savings from larger compliance measures.
Like the Conservative manifesto, one of the questions that Labour’s offering leaves unanswered is how it will address the squeeze on public services spending contained in the March Budget.
Labour has ruled out lifting taxes that account for around two-thirds of revenue, while the Conservatives pledges cover 60% of the tax base. But public services spending will almost certainly need a boost in coming years and the growth could well disappoint official forecasts. The upshot is that tax rises will be needed to make the public finances sustainable. The chances of the winner of the election having to row back on promises made on tax are high.