On 18th April 2017, the Prime Minister announced plans to call a snap general election which will take place on 8th June 2017. The three main political parties have now put forward their manifesto plans which give a vision for each of the parties’ plans for the next 5 years, as the country goes through Brexit.
Whilst Brexit is of course the biggest issue that needs to be addressed, we must not forget that the country still needs other policies to ensure smooth governance.
Businesses will be interested in the economic pledges made in the manifestos.
In this article, I have considered three key areas that are of interest to businesses – the deficit, taxation and wages. I have summarised the policies put forward by the three main political parties: Conservative Party, Labour and the Liberal Democrats.
A government runs a budget deficit in a single year when its spends more than it generates in revenue. The Government must then borrow to make up the shortfall and this increases the size of the national debt. Britain has run a deficit every year since 2001-2. The current deficit is £52 billion.
Conservatives: Will eliminate the deficit by ‘the middle of the next decade’ and commit to return to a budget surplus ‘as soon as practicably possible’.
When the conservatives came into power in 2010, it pledged to eliminate the deficit by 2015, but has slowly pushed back that horizon every year since then.
It certainly appears that they are not making any promises this time around….
Labour: Plan includes a complete elimination of the deficit ‘within five years’. It says in its manifesto ‘Our public services must rest on the foundation of sound finances. Labour will therefore set the target of eliminating the government’s deficit on a day-to-day spending within five years.’
Liberal Democrats: commit to balancing day-to-day spending by 2020 but ‘reject’ the idea that the UK should run a surplus on ‘both capital and revenue.’
Summary on deficit:
Reducing the deficit is a key pledge in both the Conservatives and Labour manifesto. The Liberal Democrats have a different approach.
This affects both businesses and individuals the most and therefore is an area of interest to every business and individual in the UK or planning to be in the UK.
Conservatives: Commit to low taxation. Plans include raising tax-free earnings allowance to £12,500 by 2020 and raising the threshold for top rate taxpayers to £50,000 by the same year. They have committed to freeze VAT at the current rate of 20%. The conservatives are also committed to cutting corporation tax to 17% by 2020, from the current 20%.
Labour: Guarantees no rises in income tax for those earning £80k per year or less. There will be no increase in personal National Insurance or VAT. They are however proposing to raise tax for anyone earning more than £80k. Labour plans to reverse any conservative corporation tax plans, increasing the rate to 26%.
They will also levy a so-called ‘Robin Hood’ tax on the City of London. This will tax derivatives and other ‘exotic’ areas of trading in the financial services sector.
Liberal Democrats: Each taxpayer will see an extra penny in every pound added to their tax bill. Plans are also in place to reverse a planned Conservatives cut on corporation tax, maintain it at 20%, rather than continuing with the planned reduction to 17%.
Summary on taxation:
Conservatives continue to favour lower taxes, whilst Labour looks to tax the rich heavily. This has been their approach historically and there is certainly no change now.
Real wages in the UK are now falling as current inflation rate is 2.7% compared to wages growth of 2.1%. Ensuring that people can maximise their earnings potential is a key commitment for UK’s political classes.
Conservatives: Will continue to raise the National Living Wage to 60% of median earnings by 2020 and then by the rate of median earnings. The intention is so that people who are on the lowest pay benefit from the same improvements in earnings as highest paid workers.
Labour: Will raise the Minimum wage to the level of the Living Wage (expected to be at least £10 per hour by 2020) for all workers aged 18 or over.
Liberal Democrats: Focus on the establishment of an ‘independent review to consult on how to set up a genuine Living Wage across all sectors. They will also force employers to reveal ‘the number of people paid less than the Living Wage and the ratio between top and median pay.’
Summary on wages:
All parties are committed to increasing wages for the lower paid workers.
All parties have shared their vision for the economic future of the country with some very interesting pledges. Voting is of course a matter of personal choice and opinion. It is also about belief that a particular party will deliver on its pledges. I have summarised the key areas that will be relevant for a business in the UK or indeed one wishing to set up in the UK. Happy voting on 8th June!
Dipali Buch is an accountant and corporate financier with over 15 years experience. One of her specialisms in is the Technology sector. She is a partner at Alliotts Chartered Accountants.
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