Party manifestos ‘pose challenges’ for local businesses

John Griffin is a partner at accountancy firm Newby Castleman, with 30 years’ experience in the tax and finance sector. Here he shares his views on the Labour, Liberal Democrat and Conservative manifestos, their pledges on tax and pensions, and what each would mean for businesses and individuals in Leicestershire.

The manifestos of all three of the traditional major parties fail to grasp some of the most substantial challenges facing businesses in Leicestershire and further afield, whilst making promises that will be difficult to keep, and each scenario poses its own hurdles and obstacles for different sections of our county’s business community.

All three have failed to address, or even identify, some significant issues. Final salary pension schemes in the public sector are unsustainable in the mid-to-long term and need to be reviewed, although none of the parties are committing to doing this. Neither has any party grasped the biggest nettle of them all – the unsustainable level of National Debt.

Additionally, there are also no flagship policies aimed at bridging the productivity gap. Output per hour in the UK is 18% lower than the G7 average, the worst it has been in decades. I had hoped to see a rigorous drive rewarding companies that significantly improve their output, but this is conspicuous by its absence from the debate.

If Theresa May sticks to her promises then the Conservative manifesto is the least-worst option, as far as Leicestershire businesses and entrepreneurs are concerned.

The Tories have enshrined their previous commitment to cut corporation tax to 17% by 2020, which would be welcome relief for Leicestershire’s squeezed small and mid-sized businesses, in addition to attracting overseas businesses. It is a sensible insurance policy against the risks that Brexit poses.

They are, however, promising to give with one hand and take with the other. The threat of a ‘Death Tax’ and ‘Dementia tax’ is grabbing headlines, especially with home care for dementia suffers now costing £10,000 per month. Changes to pension scheme regulation are just as concerning and will complicate such schemes even further, at a time when businesses are still trying to get their heads around their new responsibilities with workplace pensions and auto enrolment.

“Removing the so-called ‘triple lock’ on pensions will create additional uncertainty for pensioners themselves, and older members of our society will need to seek professional advice as they plan for their futures in the event of a Tory victory.

In terms of the Labour manifesto, the pledge that troubles me most – and there are many – is the proposed income tax increase. Putting income tax rates up to 45% for earners over £80,000, and 50% for £123,000 earnings, would be a kick in the teeth for Leicestershire’s talented and driven entrepreneurs. It would increase the effective rate for top earners to 73.2%, in the earnings band between £100,000 and £123,000 which is already an eye watering 66.6%, once NI and other contributions are accounted for. The main parties talk about a “fair” amount of tax which should be paid. I do not consider that this is fair.

Leicestershire is a hotspot for start-up businesses, and more new companies were registered in the county during 2016 than in any previous year. The owners of these businesses drive economic growth in our county, and Labour’s policies would hurt them more than most.

Labour also pledges to introduce a ‘Fat Cat Tax’, which would charge employers 2.5% on all salaries they pay out above £300,000. Whether these rules will also apply to government-funded bodies and highly-paid civil servants remains to be seen, but I suspect they won’t.

Should Labour triumph at the polls, Corbyn’s tax-and-spend approach will inevitably make life increasingly difficult for higher earners and the businesses that employ them, from small family firms through to major companies. These businesses will be under closer scrutiny, and as such, professional financial and tax advice will become even more important. The services of accountancy practitioners who can advise on subjects such as a firm’s optimal pay structure will become essential.

The Liberal Democrats are a different proposition – Tim Farron is presenting the suggested 1% rise on all income tax as some sort of silver bullet for revenue, raising the bulk of the funds whilst being fair and equitable. It’s fine in theory but I would question whether this will work in practice.

A number of their policies barely scratch the surface of the issues they are attempting to address. The £100 a week allowance for entrepreneurs and the newly self-employed is another example. It’s great that they are recognising the challenges faced by this demographic, but throwing £100 a week at them doesn’t address the root cause of the issues. At the moment, the self-employed pay almost the same amount of tax as PAYE employees, but without the benefits of paid holiday, sick pay, the security of a contract and so on. The best way to provide the stability they need to grow their businesses would be a reduction of their income tax against PAYE earners, but this isn’t being mooted.

Another soundbite from the Lib Dems is the suggestion of a ‘coffee cup tax’ on businesses using disposable cups. This will complicate tax matters for small businesses without actually raising very much money.

In the unlikely event of the Lib Dems going into coalition with another party we may see one or two of these manifesto policies come to the forefront. As their position on major issues such as Brexit is so diametrically opposed to both Labour and the Conservatives, we will be entering a very unstable, insecure period if there is no overall majority. The reassurance of a solid business strategy and an organised approach to internal financing would be vital in helping businesses to navigate that period of uncertainty.

This election was supposed to be all about Brexit and getting a massive vote of confidence and a thumping majority to negotiate with Europe. So far all I can see from the party that called this election is to alienate higher earners, pensioners and dementia suffers and the usual Alice Through The Looking Glass manifesto fiction from the other parties.