What Labour’s manifesto does (and does not) tell us about tax and policies impacting business

If you have tuned into political debates or seen the countless front-page splashes, you will know that tax and policies to woo business are the talk of the town. While numerous attempts have been made by the Conservatives to assert claims that Labour’s policies will result in large tax rises and fail to support UK businesses, they have not shifted the dial on public opinion. Beyond the political rhetoric, what does Labour’s manifesto say about taxes and policies impacting business?

What taxes will Labour impose to fund their plans?

From increasing the number of teachers to setting up a publicly owned energy company, Labour’s spending commitments will be funded by tackling tax avoidance, ending tax breaks for private schools, closing non-dom and carried interest tax loopholes as well as a windfall tax on oil and gas companies. Meanwhile, Labour has committed to not increasing national insurance, the basic, higher, or additional rates of income tax, or VAT. While Labour will raise taxes, they will have very little impact on most people.

Labour has also committed to changing business rates, highlighting that the current system disincentivises investment, creates uncertainty and places a burden on high streets. Labour stated they will raise the same revenue, but “in a fairer way”. This move has been welcomed by industry including the Federation of Small Businesses and the British Retail Consortium. However, the plan is light on detail, although we know that the Shadow Chancellor would like to see “some of the big multinationals and tech companies pay their fair share”.

While the policies have been well received, there has been some concerns about Capital Gains Tax, which was not mentioned in the manifesto. Quilter’s Rachael Griffin suggested this will “spark significant concern among entrepreneurs and investors”, if the rates for Capital Gains Tax reflected income tax rates. However, Labour has maintained this will not change, with Mishcon de Reya’s Carol Katznoting this will “provide certainty” to investors. The end of the non-dom status has also caused concern, with Katz noting many non-doms will take their “spending, investment, businesses, and employment” to more tax favourable countries. However, reforms to the non-dom status are already underway, having been introduced by the Conservatives earlier this year. While Labour will use this tax to fund public services, Andersen’s Miles Dean suggests the number of non-doms will fall dramatically significantly affecting tax revenue raised and impact Labour’s spending plans.

Beyond tax, what are the key policies impacting UK businesses?

As Labour looks to position itself as the party of business, it laid out in its manifesto its plans to support economic growth. Perhaps more than recent governments, and in acknowledgement of its narrow platform for taxation, Labour has more openly acknowledged the fiscal constrains it faces, promising growth largely through regulatory and policy reform. Some of Labour’s key policies for businesses include the creation of a government office focussed on innovation and changes to industrial relations.

The party has also outlined plans to create a new Regulatory Innovation Office, bringing together existing functions across government. Labour suggests this will help regulators speed up approval timelines, and co-ordinate issues that span existing boundaries. This move has been welcomed by industry, who recognise the support regulators require in regulating new technologies like AI when compared to other countries. While this is promising, the challenge for a Labour government will be delivering this.

The manifesto also captures some key policies from its New Deal for Working People, including banning zero-hour contracts, ending “fire and rehire” as well as improving employment rights. However, the manifesto did not include commitments to repeal legislation to prevent strike action, as set out in the New Deal for Working People. While the manifesto was endorsed by the Trade Unions Congress and GMB, Unite and the National Education Union were critical that it did not go far enough. We will provide a further analysis on Labour’s plans for industrial relations later this week. 

What choices do these policies leave for Labour?

Labour’s focus on economic growth and stability – namely through planning reform, an effective industrial strategy and regulatory reform – could lead to stronger growth. However, the Institute for Fiscal Studies (IFS) suggests that this growth would take time to arrive, and its scale is uncertain. The research institute also pointed out that Labour has identifying tough challenges ahead such as child poverty, homelessness and the struggling adult social care system. However, the IFS suggest that tackling these issues requires “actual resources on the table”.

Labour has also promised to reallocate current funding to support new policies which includes improving the delivery of public services, increasing the number of PCSOs as well as clearing the asylum backlog. Having worked in government, the biggest challenge new ministers face is understanding how to free up cash and manage competing priorities in their departmental budgets. The limited flexibility in government spending also gives Labour little wiggle room if unplanned spending is needed. Though, as Sky’s Ed Conway points out, the gap between tax rises and spending is higher than both the Conservatives and Liberal Democrats.