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What the Labour and Tory tax pledges would mean for your money

The first day of the official five-week election campaign period has started off with fireworks as Labour and the Conservatives clash over their tax plans for the next parliament.

The Conservatives, Labour and the Liberal Democrats have all pledged not to increase income tax, national insurance and value added tax (VAT) after the general election on 4 July.

Writing in The Daily Telegraph, Chancellor Jeremy Hunt said that the Conservatives would not increase the main rate of VAT after the election, challenging Labour to make the same commitment.

Mr Hunt suggested that Labour secretly intends to increase VAT, which currently stands at 20 per cent on most goods and services, by 1p to cover a £9bn gap in its spending plans.

This would “hammer families’ finances and push inflation back up, just when we have got it down to normal”, Mr Hunt wrote.

Shadow Chancellor Rachel Reeves ruled out an increase in VAT shortly afterwards, describing Mr Hunt’s suggestion that Labour aimed to raise it as “absolute nonsense”.

Munira Wilson, the Liberal Democrats’ education spokesperson, told BBC Breakfast that the party would not raise VAT, income tax or national insurance.

Here’s what each party’s tax plans will mean for your money if they win the general election.

Conservative plans for taxes

The Conservatives have pledged not to increase VAT, national insurance and income tax in the next Parliament.

Mr Hunt has lowered national insurance twice since he entered No 11, suggesting that this will allow people to save an average of £900.

Speaking at an event in London on Friday, Mr Hunt said that “if we can afford” it, the government would cut national insurance again in the autumn.

He said: “If we can afford to go further to responsibly reduce the double tax on work this autumn, that is what I will do.

“We make no apology for wanting to keep cutting the double tax on work until it’s gone, but only when we could do so without increasing borrowing and without cutting funding for public services or pensions.”

Mr Hunt has expressed his commitment to abolish national insurance entirely in the future, describing the tax as “unfair,” given that other forms of income are only taxed once.

Labour has criticised Mr Hunt’s plan to abolish national insurance, suggesting that this plan would cost £46bn and would create a “black hole” in the UK’s finances.

The Conservatives have also promised to cut taxes for pensioners by creating an “age-related” tax-free allowance, which they called the “triple lock plus.”

People are currently allowed to receive £12,570 a year for their pensions before they start paying income tax on them. However, if the Conservatives win the general election, pensioners’ allowance would increase in line with either inflation, by 2.5 per cent, or their average earnings from next April, depending on which is higher.

Rishi Sunak said the policy would bring people “peace of mind and security in retirement” and it demonstrates that the Tories “are on the side of pensioners”.

Mr Hunt has also described inheritance tax as “pernicious”, adding that it is “profoundly anti-Conservative because it stops and disincentivises people from saving for their future.”

In an interview with The Daily Telegraph, Mr Hunt refused to verify whether a cut in inheritance tax will be part of the Conservative manifesto.

Labour plans for taxes

Labour also pledged to not increase VAT, national insurance and income tax in the next parliament.

Shadow treasury minister Darren Jones told BBC Breakfast: “We’re not raising VAT. We’re not raising income tax. We’re not raising national insurance.

“The way we talk about these taxes is as taxes on working people because the majority of working people will know that the big taxes they pay are those that are set out in their payslip, in their shopping and bills on a day-to-day basis.

“So we have consistently said we want the tax burden on working people to come down, because it’s the highest it has been in 70 years.”

When asked where the funds for Labour’s spending commitments will come from, Mr Jones said: “They’re fully funded by closing a number of tax loopholes and those loopholes are VAT on private school fees, private equity bonuses, closing some of the loopholes in the non-dom tax system, and then tackling tax avoidance.”

Addressing the Labour Conference in October 2023, shadow Chancellor Rachel Reeves said: “In my first budget as chancellor I will end the tax loophole which exempts private schools from VAT and business rates.”

Labour analysis suggests that a VAT tax on private school fees alone could raise £1.7bn per year.

While Labour announced that it intends to broadly adhere to the same non-dom tax system introduced by the Tories during the 2024 Spring Budget, it plans to make amendments to the policy to close certain “loopholes” surrounding the taxation of offshore trusts.

Drawing a line between Labour and the Tories, Keir Starmer announced early this year that he is “fundamentally opposed” to the Conservatives’ proposal to cut in inheritance tax.

Rumours of Labour’s intention to introduce a wealth tax or a mansion tax have been shut down by Ms Reeves, who has said she will “not target expensive houses” and that Labour has “no plans for a wealth tax.”

Liberal Democrat plans for taxes

The Liberal Democrats have also pledged not to increase VAT, national insurance and income tax in the next parliament.

The party has also pledged to end the freeze on income tax personal allowance, which it describes as “a stealth tax falling disproportionately on low earners“.

In an interview with Mr Hunt on the BBC’s Radio 4 Today, Nick Robinson pressed the Chancellor by suggesting that freezing income tax personal allowance has led four million people to pay income tax for the first time, while moving three million into paying some income tax at the higher rate of 40 per cent.

In response, Mr Hunt said: “Have I been able to cancel out all those tax rises? No. But I can absolutely undertake that the threshold freeze that we introduced until 2028 will not continue after that.

“It means that we’re not going to increase it beyond the levels it is currently set at, nor national insurance. In fact, we hope to bring down national insurance.”

The Liberal Democrats have promised to tax income from capital more fairly by abolishing separate capital gains tax-free allowance, instead taxing capital gains and salaries through a single allowance.

The party has also pledged to tackle tax avoidance, narrow the tax gap to help boost income for lower earners, and allocate more resources to HMRC to tackle tax fraud.

Election 2024

Rishi Sunak and Sir Keir Starmer are out on the campaign trail after the Prime Minister announced a surprise snap election on 22 May. i‘s general election live blog follows all the twists and turns of the election period from all the major parties.

The Tories have announced a mandatory national service policy and a “triple lock plus” for pensioners, but are losing more MPs as Lucy Allan entered talks to defect to Reform UK after her suspension.

Labour’s NHS backlog plan has had some criticism but all eyes are on candidates claiming they have been blocked from standing, including Diane Abbott and Faiza Shaheen. Despite this, Starmer is still odds on to become the next prime minister.

Keep up to date with the 2024 general election in our extensive coverage, on everything from the main parties’ environment pledges to the seats still without a candidate.

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