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By Ben Stupples
The English capital may suffer under the tax measures announced in the Labour Party’s manifesto, according to tax practitioners, raising concern on its policy priorities ahead of next month’s election.
In its manifesto for the June 8 general election, Labour officially revealed tax measures May 16 that target the U.K.’s top earners and businesses, including a 5 percent tax rate increase for anyone earning more than 80,000 pounds ($103,200) and a levy on companies with staff on high salaries. The left-wing party also pledged to increase taxes on financial transactions, targeting the U.K.’s financial center in London, and raise the U.K. headline corporation tax to 26 percent by 2021.
London will “bear the brunt” of Labour’s tax announcements, George Bull, a London-based senior tax partner at accounting firm RSM, told Bloomberg BNA in a May 16 interview. The measures equally risk “sucking out” money from other major cities across the U.K., he added.
Jonathan Riley, Grant Thornton’s U.K. head of tax, told Bloomberg BNA in a May 16 email that making a “cash cow” out of London to fund spending commitments “seems remarkably odd and risky” amid the economic uncertainty following the U.K.’s vote to leave the European Union.
London accounts for almost a third of the U.K.’s total taxes, according to a July 2016 report from the Centre for Cities think-tank, indicating that the government is dependent on its business activity.
The U.K.’s financial services—most of which are based in the City of London—account for as much as 11.5 percent of the government’s total tax receipts, according to the City of London Corporation.
In addition, almost half of the multinational companies listed on the FSTE 100 stock exchange are headquartered in the English capital, according to a review of each company by Bloomberg BNA.
Led by Jeremy Corbyn, a London member of Parliament since 1983, Labour’s tax measures come as part of its efforts to unseat the rival Conservative Party from power at the June 8 general election. Prime Minister Theresa May, who called the snap election last month, is seeking to extend her slim majority in Parliament to strengthen her hand when the U.K. negotiates its departure from the EU.
Labour’s income tax changes—which also includes a 50 percent rate for those earning more than 123,000 pounds—would hit 1.3 million individuals, according to the Institute for Fiscal Studies think tank. The U.K.’s top rate is currently 45 percent for those earnings more than 150,000 pounds a year.
Along with a 2.5 percent levy on companies that pay staff more than 330,000 a year, Labour’s plans to increase taxes on high-earners, financial transactions and corporation taxes account for over half of the party’s spending pledges, according to an analysis of Labour’s policy costings by Bloomberg BNA.
Labour’s manifesto “does seem to be skewed to London and the South East, which I suppose is the intention if you want to heavily tax the ‘rich,’” David Brookes, U.K. head of tax at accounting firm BDO, told Bloomberg BNA in a May 16 email. “The problem is not many people feel rich if they live in London.”
Labour also said it plans to:
According to the footnotes of Labour’s policy costings, the levy on the residential property sales will raise as much as 3.5 billion pounds a year. The tax will apply on top of the 15 percent stamp duty for residential properties costing more than 500,000 pounds purchased by certain corporate entities.
Frank Nash, a London-based tax partner at accountancy firm Blick Rothenberg, told Bloomberg BNA in a May 16 interview that London is the most popular area for corporate entities buying residential property. Due to the existing stamp duty, the London market for corporate entities has “already dried up,” making Labour’s target of 3.5 billion pounds a year “wishful thinking,” he added.
Under Labour’s manifesto plans, 95 percent of taxpayers “will be guaranteed no increase in their income tax contributions,” a party spokesman said in a May 16 emailed statement. “Only the top 5 per cent of earners will be asked to contribute more in tax to help fund our public services.”
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