Episode 1 - Comparing the party manifestos

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Welcome to the opening episode of our First 100 days in office

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podcast series. We’ll delve into the elected party's policies

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and how this could impact sectors, businesses and individuals.

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With under a week to go until the country goes to the polls

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today, we're going to compare each party's manifesto, looking in particular

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at the views of the economy, income taxes,

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capital gains tax, pensions, closing some of the tax

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loopholes for non domiciled individuals and corporate taxation.

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I'm Paul Barham, Head of International Private Client.

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And today I'm joined by our Chief Investment Officer, Ben Seager Scott,

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a Senior Financial Planner from the team

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James Robinson and Lucy Marshal, Corporate Tax Director.

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Ben, if we begin with you, a lot of the headlines

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coming from the party manifestos were focused on the economy.

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What pledges stood out for you?

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Do you think they're achievable?

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Thanks, Paul.

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I mean, I think the main thing that that jumped out of me is,

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is the lack of any real deep economic proposals.

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Indeed, I think the Institute of Fiscal Studies called out

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a conspiracy of silence over how the books are going to be bounced.

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Maybe that's a little bit harsh, but I think all of the parties

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are facing the reality that the tax burden is very high

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spending commitments are high, public services are still under strain

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and borrowing costs are high, which means none of them really have have

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any room to maneuver or differentiate.

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And that's really come through, I think, in the manifestos, I think

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what all the parties are highlighting is this need to achieve growth.

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That means productivity growth is how you get out of this bind.

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You grow your way out of out of trouble.

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but frankly, looking at the manifestos

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at the moment, there's a lot of hope, not very much strategy.

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And I think there is an inference there that strategy will come after

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the election is out of the way.

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But it's not clear from the manifestos that we're seeing at the moment.

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I think there are some positive points in there.

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but really there's a lot of commonality across the major manifestos

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and in particular tend to focus on the Conservative and Labor manifestos.

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I think the tax exemptions we've seen over the last couple of years in areas

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around research and development, those will help business productivity.

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None of the parties are looking to roll those back,

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so that could support medium term productivity gains.

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Equally, there's there's a common point of no intention

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to increase corporation tax.

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What happens down the line and whether they come down.

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There's a bit of differentiation between the parties.

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But I think the main point is no real intentions to increase that

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corporation tax.

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That could be, if not a positive and certainly not a negative

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for the economic and business outlook.

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I think in terms of some of the more eyecatching plans, labor,

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of course, have a plan to create a great British energy corporation

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that's going to be partly funded by a windfall tax on oil and gas.

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Labor's also announced a plan to set up a national wealth

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fund that's going to be focused on clean technology.

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Now these are emotive areas, but I think they're relatively small in isolation.

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What's really missing is any wider material plan for the broader economy.

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Ben. Thank you.

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maybe we could just sort of get your view a little bit of

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what investors would like to see from the next government.

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I think what investors are really clamoring for is stability.

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And that might have to come after the election.

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Once whoever is in power has a chance to lay out their stall a little bit more.

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but stability, I think that's been missing,

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even though one party has been in power for a number of years.

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There's been different sort of Sup regimes within that.

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We've had just the conservative prime ministers Cameron

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that May, then Johnson and Truss then soon act.

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So even within one party there have been several different,

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effects for the mini eras,

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and that's made it difficult, I think, for businesses to plan ahead.

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So I think what investors and businesses are looking for is some sense of stability

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and a more pro-business rhetoric, particularly rewarding businesses

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for investing in long term productivity, because, again, it's it it's crucial

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to get that that idea across, that if we want to grow our way out of the current

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difficult tax situation, that businesses need to be able

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to invest to achieve that, that productivity growth.

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And I think also what we what we need and what investors will be hoping for

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is it is a steering away from windfall taxes.

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We've seen 1 or 2 windfall taxes on oil and gas in limited amounts.

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That's okay.

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What's important is we don't create this environment

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or this sense from the investing and business community

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that any time you make supernormal profits,

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the government is just going to come in and tax it.

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We're not we're not there.

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But I think

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whichever government gets in, investors will be looking for signs

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that they will allow businesses

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to flourish rather than jumping on any profit and tax.

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Get away.

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James, if I turn to you,

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maybe we can just touch a little bit about pension planning.

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I know Labor's backtracked on their plans to reintroduce the lifetime allowance.

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but they have said they'll review pension legislation if elected.

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what do you think they could do?

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as part of that review.

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It's a great question.

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I think the two there's two avenues that I think they could look to go down

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if looking to, to raise tax and to go back to Ben's point

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that it does feel like there is a need

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or that there could be a desire to raise taxes.

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One format or another is the growth that is hoped for to Ben Woods,

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isn't achieved necessarily that the first thing that's been mentioned

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is that they might look to just apply a flat rate of tax relief

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when paying into a pension.

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So at the moment you get tax relief based on whichever rate of income tax you pay.

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So people paying 40 and 45% rates of income tax

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get 40 and 45% tax relief when they pay into their pension,

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so they could look to rely on that as a single flat rate of tax relief.

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However, there was an article the other day from Steve Webb, the former

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pensions minister, that said while this in practice could be something

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they look to do.

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It could

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then be very complicated in terms of how they actually come to administer it.

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And he felt like it would be a bit too difficult to have this work in practice,

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because then we have to consider

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not only what tax relief are you getting on the way in,

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but what rate of tax are people paying on the way out and that

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could this create some form of retrospective tax charges

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if people already with pension funds

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are then going to be taxed in a different way to which they expected

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when they first paid into the pension?

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So that's the first thing we could look at.

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In reality, it might be easier for them to play around with what

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the annual limits are in pension contributions again.

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But when doing this, they have to be very careful about

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affecting different groups, particularly doctors.

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and whether they might be inadvertently

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hitting them with additional tax charges, given how good the NHS pension scheme.

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So so the first is how is it they look at tax relief on the way in the

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the other thing I think could be under review is how death

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benefit taxation operates on pensions, that

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when the lifetime allowance was removed, the way the conservative governments,

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put it was that they're removing the lifetime allowance

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or removing some tax charges that could be payable during your life,

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but they'd be introduced in what's called now called the, the lump sum death

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benefit allowance, which would have capped

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the amount of tax free benefits the next generation could receive.

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So the the implication there was that

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we won't tax it during life, but we're probably going to tax it more on death.

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With the iterative changes that we've seen coming out of pension

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legislation, it is still actually possible.

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Now for people to inherit a pension, keep it within the pension.

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And if death occurred before 75, there's no tax payable.

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If death occurs after 75, those beneficiaries

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could choose when it is they pay an income tax charge.

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So from a UK

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budgetary perspective, that's quite a challenge in that

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in theory, people could just defer when they draw paying from these funds

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indefinitely and never have to pay any tax charge on it.

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To me, what could feel sensible is if they look to apply

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a tax charge on death itself based on the value of benefits,

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but then look to not have a later tax charge apply on drawing income.

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If it were me, that's what I could see is the simplest way of doing it.

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But of course I've been surprised by the legislation changes before.

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Lucy, I thought it could be an interest question

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for you that what do you think it could mean about

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what do you see could change around capital gains tax, inheritance tax?

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And what could that mean around businesses in particular as well?

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Yeah.

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Well there has been quite a lot of talk about raises in capital gains

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tax especially.

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And I think the Liberal Democrats in their manifesto have said

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that they intend to raise capital gains tax, which is an interesting point

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to consider when thinking about it in the context of deals,

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because obviously, an increase in the rate of capital gains

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tax would mean a reduction in the take on proceeds for those business owners.

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And the obvious question is, is that going to put them off?

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which it could do.

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The flip side of that is a time and thing.

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when would we expect to see the changes to capital gains tax rate?

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If it was from next April?

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That may be produces a window to get deals through the line.

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So there could be a slight increase in deals in the short term.

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And then an expected decrease

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in the longer term, which then is something worth considering.

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If you do increase that rate and reduce the number of deals, does that then mean

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the actual take home of capital gains tax doesn't increase

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because you've reduced the number of deals to compensate for the higher rate?

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so it's an it's an interesting one to think about. And

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I guess the

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increase in capital gains tax rate has been threatened

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a number of times over the last, certainly five or so years.

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We've had a few incidents

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where we've expected it to go back and it's not happened for whatever reason.

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So it will be an interesting one to see how it plays out.

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On the other side of that, the on the h IHT side of things,

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there's been a lot of talk about BPR and whether that will remain

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as generous as it is now, and which I think is an interesting point.

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Thinking about it

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from a similar perspective, in that when you've got a trading company

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that qualifies for inheritance tax relief, a BPR,

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you are then encouraging,

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taxpayers to hold on to that asset until they die

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and let it pass on death because it passes free from inheritance tax.

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So maybe changes to BPR could encourage more selling.

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You just don't know.

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It's it's one of those should tax drive any of these things.

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Probably not.

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But it is a factor and something that

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could have an impact.

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Should we see any quite drastic changes?

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Lucy I think obviously business owners are, concerned about their position,

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and how they access, their,

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their investment or access their income generated by the business.

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But unless and then picked up on it earlier,

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there's, there's labor and the conservative parties

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have both said they're not raise corporation tax for these next five years.

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but but what are the benefits of freezing corporation tax?

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and are there any negatives of keeping it at the current rate,

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the main rate of 25% is a really good question,

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and I think it goes back to what Ben was saying at the start.

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What businesses say time and time again is that they want

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stability when it comes to corporation tax.

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And so freezing the rate gives them five years of stability,

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which means they can plan, they can make long term investment decisions.

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They can really think about the future without having changes

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to tax rates every year, which you can see from a business perspective

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how that would be difficult to plan for.

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The other thing is when, like in Lincolnshire, back

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to what we've just said about deals is when we think about value,

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the value of a business on a deal,

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typically that value is calculated

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above, always based on and it's before interest and tax.

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So like tax doesn't really impact the value from that perspective.

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So that's a good thing.

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I feel like when you talk about a tax

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take in a business, it's less personal than the CGT

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and IHT like even business owners, that's their money.

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Whereas the business is money is a different

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psychology, which is quite interesting.

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and the flip side of freezing the corporation

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tax rate is obviously we have quite a generous regime at the minute

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when it comes to full expensing, with which both parties have said

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they're going to keep and at a higher rate of tax.

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You are saving more by getting that relief.

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So that's positive.

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and as Ben alluded to before, both have said

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that they are going to keep the innovation relief such as R&D and patent box,

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again, both generous reliefs that a competitive on an international basis.

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So there are plenty of positives in there.

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I guess the negative side of keeping a 25%

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rate of corporation tax, is it on an international stage?

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It may be quite high, but the other side of that

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is that we now have a global minimum rate of tax at 15%.

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So I think we do see less shopping around for tax rates.

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And companies tend to locate where the commercially need to locate,

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so I don't think

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that would be an overwhelming concern

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for the certainly not our clients.

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Thank you. Lisa.

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James, maybe, we could pick up on,

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what the two main policies said about income tax

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and that they're not intending to increase income tax rates.

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but the Liberal Democrats have said they would raise the personal allowance

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and then look to raise income tax when finances allow.

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How different is this approach from the main parties who have pledged

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to freeze, thresholds until 2028?

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They're both different approaches,

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but in reality they're both trying to do the same thing one way or another.

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But they're just

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it feels like they're trying to do it in a way that feels different politically.

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So if you take the example of the Liberal Democrats that said that,

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look to increase thresholds and also look to increase the tax rate,

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that they're increasing how much you can receive at any particular rate

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and not have to pay more tax.

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But they might therefore

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make you pay more tax on a smaller amount effectively.

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So you've got your rate increase, but the amount that you pay

00:15:14:14 - 00:15:16:00
pay it on is decreased effectively.

00:15:16:00 - 00:15:19:18
So you getting out to a similar sort of rate or even a higher rate

00:15:19:18 - 00:15:22:18
overall, rather than a so similar to what it was

00:15:22:21 - 00:15:26:21
for the conservative government and labor, and particularly what the conservative

00:15:27:07 - 00:15:30:14
government has been doing over the last few years already,

00:15:31:02 - 00:15:35:04
is that they've been increasing the overall tax take.

00:15:35:18 - 00:15:38:19
But while being able to say politically, we haven't raised taxes

00:15:39:05 - 00:15:42:19
because what they've what they've let happen is increasing

00:15:42:19 - 00:15:46:17
incomes and asset values over time has meant that more

00:15:46:17 - 00:15:49:17
people are paying tax at the higher rate or more people are paying.

00:15:49:17 - 00:15:52:05
Inheritance tax has been mentioned before already,

00:15:52:05 - 00:15:55:08
but just at the same percentage rate as it was before,

00:15:55:08 - 00:15:58:24
but by more people having higher incomes and higher asset values,

00:15:59:24 - 00:16:01:23
even by keeping the percentage tax rate

00:16:01:23 - 00:16:05:04
the same, it increases the overall tax rate for the UK government,

00:16:05:10 - 00:16:08:09
and it also increases the overall effective rate of tax.

00:16:08:09 - 00:16:11:09
People are paying on their overall incomes and over all assets.

00:16:11:18 - 00:16:15:15
It's been deemed a number of different times of the stealth tax over the years,

00:16:16:00 - 00:16:19:08
and it is something that people need to be careful of, is that even though

00:16:19:08 - 00:16:24:06
the headline rate is going up, by keeping allowances fixed for a number of years,

00:16:24:16 - 00:16:27:08
it should be increasing the amount of tax they pay over time.

00:16:27:08 - 00:16:29:10
Certainly. Okay.

00:16:29:10 - 00:16:30:24
And one of the things we've not really touched

00:16:30:24 - 00:16:34:10
upon, we've been talking about tax rates up to now is the impact of,

00:16:36:17 - 00:16:39:07
the international perspective for individuals.

00:16:39:07 - 00:16:43:17
Eight manifesto and a common theme throughout the discussion of tax

00:16:44:02 - 00:16:44:19
and the election over

00:16:44:19 - 00:16:48:18
the last few months has been around clear closing loopholes for Non-Doms.

00:16:50:18 - 00:16:52:10
and we saw that process really start

00:16:52:10 - 00:16:55:11
in, in March with the conservative government's budget,

00:16:56:04 - 00:16:59:10
where they were looking to move Non-Doms

00:16:59:10 - 00:17:02:23
and the tax regime for non domiciled individuals to a residency

00:17:02:23 - 00:17:05:23
based system.

00:17:06:05 - 00:17:07:10
the consequence of that

00:17:07:10 - 00:17:12:08
was that under those those rules, after four years of residency,

00:17:12:12 - 00:17:17:13
people from overseas would be paying the same tax basis as, as, as anybody.

00:17:18:04 - 00:17:21:04
from, from born, raised in the UK.

00:17:22:08 - 00:17:24:17
I guess when you look through the manifesto

00:17:24:17 - 00:17:27:17
and when I've taken it through the manifesto, is there certainly being,

00:17:28:12 - 00:17:30:05
comments around what might happen.

00:17:30:05 - 00:17:33:15
And in the press we've had, various announcements.

00:17:34:07 - 00:17:39:01
I think if we look at where we were, we seem to still have protected

00:17:39:01 - 00:17:43:01
trust status as an option, which certainly had inheritance

00:17:43:01 - 00:17:46:05
tax benefits for certain grandfathered offshore trusts.

00:17:47:23 - 00:17:52:07
the government in March, also announced,

00:17:52:17 - 00:17:57:01
a number of transitional provisions to move people off the non-dom regime.

00:17:57:08 - 00:18:00:11
And into that residency, system.

00:18:01:08 - 00:18:04:11
And some of the parties have sort

00:18:04:11 - 00:18:07:11
of discussed to a certain degree,

00:18:07:15 - 00:18:10:23
how they might tighten up on some of those, provisions,

00:18:12:00 - 00:18:15:00
to deal with that transition from one regime to the other.

00:18:16:02 - 00:18:19:02
I suspect we'll see a lot of changes.

00:18:19:04 - 00:18:22:07
on closing those loopholes in the next few months,

00:18:22:14 - 00:18:25:07
in the same way that you might hope to see more detail about

00:18:25:07 - 00:18:28:11
where the policy on income tax is going to go more widely.

00:18:28:23 - 00:18:31:15
Lucie's point on capital gains tax.

00:18:31:15 - 00:18:35:05
so we'll we'll we'll have to somewhat sort of wait and see.

00:18:36:06 - 00:18:41:04
but then with, with one of these changes or lack of clarity of the,

00:18:42:15 - 00:18:43:23
the hopeful clarity

00:18:43:23 - 00:18:48:12
that we will get in the coming weeks, how how does that impact

00:18:48:12 - 00:18:52:17
on the attractiveness of the UK amongst international investors?

00:18:53:17 - 00:18:55:20
I think, it's

00:18:55:20 - 00:18:59:03
that the first order effects are probably quite limited.

00:18:59:16 - 00:19:03:17
because a lot of these rule changes are aimed at individual deals

00:19:03:18 - 00:19:06:18
rather than businesses and the economy.

00:19:06:18 - 00:19:07:10
So I think

00:19:07:10 - 00:19:12:12
in terms of the fundamental attractiveness for now, it's a little bit more limited.

00:19:12:12 - 00:19:17:07
Of course, a lot of, non-doms are going to be international investors,

00:19:17:13 - 00:19:20:13
but then the broader international investor community,

00:19:21:18 - 00:19:24:18
non-doms are probably only a very small part of that.

00:19:24:23 - 00:19:27:18
Overall, I think it's much more about sentiment.

00:19:27:18 - 00:19:32:01
And I think though it doesn't necessarily make the UK less attractive,

00:19:32:06 - 00:19:35:04
potentially, it might make it a slightly

00:19:35:04 - 00:19:39:06
less attractive place to live for some investors, but it doesn't.

00:19:39:06 - 00:19:42:03
It shouldn't really affect directly the underlying market.

00:19:42:03 - 00:19:46:02
But again, like we're talking earlier about some of the windfall taxes

00:19:46:02 - 00:19:49:15
and other elements in and of itself, these these changes

00:19:49:15 - 00:19:53:04
probably don't change the attractiveness of the UK market.

00:19:53:10 - 00:19:57:01
But there is always the risk that if you start to be seen as being less

00:19:57:01 - 00:20:00:17
friendly to international investors, then that could start to change

00:20:00:22 - 00:20:01:24
some of the sentiments.

00:20:01:24 - 00:20:06:07
There's probably more of a sentiment risk rather than a fundamental attractiveness

00:20:06:07 - 00:20:08:05
risk, and it's going to be a calibration

00:20:08:05 - 00:20:11:01
that any government is going to need to think about.

00:20:11:01 - 00:20:16:03
The one area that that's related that perhaps would change some of the views,

00:20:16:03 - 00:20:20:13
but none the parties are talking about is stamp duty reserve tax.

00:20:20:13 - 00:20:22:19
Now, this is a tax the investors have to pay.

00:20:22:19 - 00:20:27:03
It's about half a percent or less, half a percent on most or on the purchase

00:20:27:03 - 00:20:31:17
of most shares in the UK and the UK is starting to become an outlier

00:20:32:13 - 00:20:36:08
in charging this sort of share transaction based tax.

00:20:36:08 - 00:20:38:17
But none of the parties are talking about it.

00:20:38:17 - 00:20:41:20
If if the government wants to change the attractiveness

00:20:41:20 - 00:20:46:05
of UK equities to international investors, that's investors generally.

00:20:46:10 - 00:20:47:19
That's an area they could look at.

00:20:47:19 - 00:20:51:18
But for now, that's not in scope of any of the parties.

00:20:52:06 - 00:20:54:12
Ben. Thank you. let's wrap up.

00:20:54:12 - 00:20:59:01
Firstly, thank you very much to Ben, Lucy and James for joining me today.

00:20:59:16 - 00:21:04:00
There are a number of themes that each manifesto seems to be covering.

00:21:05:12 - 00:21:07:08
I guess the point

00:21:07:08 - 00:21:11:01
that seems to sort of run throughout all of them is the focus on growth.

00:21:11:09 - 00:21:13:23
Despite some of the warnings about balancing the books

00:21:13:23 - 00:21:16:23
and the IMF comments a couple of months ago around

00:21:16:23 - 00:21:19:23
needing to be careful of tax cuts.

00:21:20:09 - 00:21:22:22
Some parties talk about increasing taxes,

00:21:22:22 - 00:21:26:04
others, hoping much more for a growth in the economy.

00:21:26:15 - 00:21:30:12
There is, in any event, a real change, in terms of tax

00:21:30:12 - 00:21:33:00
and the landscape for tax in the next few months,

00:21:33:00 - 00:21:37:05
it was really important to keep focused on planning for the future

00:21:37:05 - 00:21:41:10
and creating flexibility within that plan so that as and when we learn more

00:21:41:10 - 00:21:45:00
about these changes, you can reflect those in in whatever you do.

00:21:46:09 - 00:21:49:09
Our next episode will be released on Friday the 5th of July.

00:21:49:10 - 00:21:52:11
We'll be joined by our economist, who will give us

00:21:52:11 - 00:21:55:11
an update on how the markets have reacted to our new government.

00:21:56:16 - 00:21:58:08
Thank you for listening today.

00:21:58:08 - 00:22:01:16
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00:22:01:16 - 00:22:02:18
leave a review after this.