Business leaders often face no-win situations: regardless of their decision, someone loses.
Similarly, there will be no winner on tax policy for businesses from the U.K. general election, which will be won by either Theresa May's Conservatives, or Jeremy Corbyn's Labour Party.
Like financial markets, the tax world seeks certainty. Campaigning under a slogan of 'Strong, Stable Leadership,’ the Conservatives may seem the party that best fits the bill. Moreover, as the current party of government, they would largely keep the tax policy status quo after the June 8 election. Businesses, for example, could still expect to see the U.K.'s corporation tax fall, as former chancellor George Osborne announced last year, to 17 percent by 2020.
The Labour Party, conversely, would dismantle the Conservative Party's tax policy, pledging to hike corporation tax to 21 percent by 2021. In addition, they would impose further taxes on financial transactions and impose a 2.5 percent levy on companies that pay staff high salaries.
These last two Labour policies, as tax practitioners told Bloomberg BNA, pose a specific risk to London—a city that boasts the U.K.'s financial centre, accounting for more than 10 percent of the government’s tax receipts, and the headquarters of more than half of the FTSE 100.
Beyond the Election
Based simply on their manifestos, the Conservatives have the more attractive tax policies for businesses, despite a pledge for "tougher regulations" on tax advisory firms. Looking beyond the election, however, the spectre of Brexit lurks behind the party. Earlier this year, May said the U.K. will be free to set “competitive tax rates” once it’s outside the European Union, prompting Labour to warn of the country becoming a tax haven under the Conservatives.
As a consequence, while they may provide short-term stability on tax policy for businesses, the Conservatives may pose a long-term risk to that same certainty through their possible Brexit plans. Furthermore, a move to make the U.K. more of a low-tax jurisdiction could provoke criticism from other jurisdictions, not least in the EU, and even erode the U.K.'s tax base. Why would foreign companies locate to the U.K., or set up operations in the country, if their move is branded as tax avoidance? At the moment, a key attraction of the U.K. is that it’s a competitive location for business taxation—but it’s not regarded (yet) as a tax haven.
As we have seen, Labour oppose making the U.K., as Corbyn said in April, a “low-wage tax haven.” At the same time, though, they risk weakening the country's leading companies and financial services sector when the U.K. needs a strong business industry in the face of Brexit.
A Labour government’s tax policies might also create an awkward stand-off with Mayor of London Sadiq Khan, himself a Labour politician. After the party launched its manifesto, Khan vowed to would “stand up” against any taxes that unfairly target the English capital.
Damaging Tax Policies
To varying degrees, then, both parties risk introducing damaging tax policies for businesses. A vote for Labour may punish London, but a vote for the Conservatives might equally deter foreign companies investing in the U.K. if the country is perceived as becoming a tax haven.
Unless we have a hung parliament, either the Conservatives or Labour will emerge victorious after June 8. Neither party, though, can ultimately claim victory on tax policy for businesses.
By Ben Stupples, Senior Reporter, International Tax
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Read a selection of Bloomberg BNA’s coverage from the U.K.’s 2017 General Election:
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