On 1 February, the Labour Party announced its vision for working with business if it wins the general election. The announcement included plans for a business tax system aimed at increasing stability to encourage investment and growth.
Labour will cap corporation tax at 25% for the duration of the next parliament. Speaking at Labour's business conference, shadow chancellor Rachel Reeves said a 25% corporation tax rate struck the right balance between the country's fiscal needs and the demands of competing in the global economy. But she did not rule out taking action if changes to international tax systems threatened to undermine Britain's competitiveness.
The party has pledged to maintain full expense accounting and not reduce capital allowances below current levels. HMRC will be asked to produce guidance on which assets qualify for different types of capital allowances.
The announcement also confirmed that if Labour comes to power it will maintain R&D tax credits, the patent box scheme and annual investment allowances.
Labour will also publish a corporation tax roadmap within six months of coming into power, setting out five years of scheduled changes to corporation tax cuts and capital allowances.
One announcement that is likely to pique business interest is the intention to explore greater use of rulings and recognitions, which govern the tax treatment of potential investments and provide “greater certainty to businesses”.
Labour also intends to continue its multilateral work, including on an international minimum rate of corporation tax, an agreement on taxing digital multinationals, and coordinated action to tackle tax evasion.
Other announcements confirmed previous statements, including:
- Strengthening the current temporary tax on North Sea oil and gas producers.
- Replace business tax with a new business property tax regime that rebalances the burden between city-state businesses and digital multinationals.
- It will reform the Apprenticeship Levy into a more flexible Growth and Skills Levy, ban “exploitative zero hours contracts” and end “fire and rehire”.
- Consider your pension and retirement savings situation.
From a policy perspective, the government confirmed it would only table a single budget each November, four months before the new tax year, as well as introduce “ironclad fiscal rules and a fiscal lock”.
To further improve the tax system, Labour will focus on digitising the tax system to generate “productivity gains” for businesses through the following initiatives:
- Reducing the complexity of taxation for businesses.
- Minimise the amount of data that needs to be provided to HMRC.
- Improves recording accuracy and speed.
But in a Q&A with journalists, Reeves made no mention of raising the income tax threshold, and reiterated proposals to close “loopholes” for private schools, private equity managers and non-residents, suggesting he would replace the latter with a “fairer system” for people staying in the UK for short periods.
If Labour forms the next government, businesses will be happy to see a formal statement on its tax reform plans, with further announcements inevitably coming in the coming months as Labour gears up for the upcoming general election.
Stephanie Redmond, KPMG
