Tax rises that will follow election day

TAX is proving taxing for the major political parties as the General Election approaches. The Tories have pledged to cut them for the low paid and the middle classes but refuse to be drawn on their plans for higher earners and the wealthy.

David Cameron and George Osborne are desperate for the Conservatives not to be seen as the party of the rich.

Labour, meanwhile, promises to soak the rich but refuses to say what other taxes it must increase to balance the books given its opposition to spending cuts.

The two Eds – Miliband and Balls – know there are not enough bankers, mansions or non-doms to raise the money they need but do not want to spell out who else they will hit (you and me).

This means that voters will go to the polls next month largely in the dark over what each party has planned should it win power.

So here are some tax changes to look out for in the next Parliament – no matter what the politicians claim now:

1. Corporation tax

The Coalition has cut corporation tax from 28pc to 20pc and the Tories will leave it there – fulfilling their pledge to have the lowest corporation tax in the G20. It is also 20pc in Russia, Saudi Arabia and Turkey.

Labour says it will raise corporation tax to 21pc but this will only be the start. Its pledge to have the lowest corporation tax in the G7 means it can raise the levy towards the 26.5pc seen in Canada – something an anti-business and cash-strapped Miliband government is likely to do.

2. VAT

The Tories’ favourite tax. Conservative chancellors have a record of raising VAT and may do so again. Osborne, who put it up from 17.5pc to 20pc in 2010, insists he has no plans for another increase. But it would be no surprise if he changes his mind.

A Labour government would have to be really desperate to raise VAT and is far more likely to tax profits, incomes and wealth.

3. National Insurance contributions

NICs are paid by employers and their employees.

Tories label it the ‘jobs tax’ and are more likely to ease the burden on firms and workers than add to it. But it would be no surprise to see Labour raise national insurance on employers and employees to pay for increased spending on the NHS.

4. Additional rate income tax

This kicks in at £150,000 and was cut by the Coalition from 50p to 45p. The Tories are likely to cut it again to 40p despite claims to the contrary.

While they are at it, they will probably get rid of the anomaly that sees those earning between £100,000 and £120,000 paying a marginal rate of up to 60p in the pound. Opponents will brand it a tax cut for millionaires.

Labour have promised to raise the levy back to 50p. But, given Miliband’s pledge to bring back Socialism, he could go even further by lowering the amount someone can earn before paying 50pc from £150,000 to £100,000.

It may be damaging to enterprise and aspiration, but it would delight the Left and the unions.

5. Higher rate income tax

The tax rate of 40pc is unlikely to change whoever is in power – but the threshold will. The Tories have promised to raise the threshold from £42,385 this year to £50,000 by 2020 but a majority Conservative government will come under pressure from its own MPs to go further.

If the threshold had risen in line with wages since the 1980s – when just one in 20 paid 40p tax – it would now be around £75,000.

Labour has promised not to increase the 40p rate. Instead it will drag millions more into it by keeping the threshold at around the £40,000 – £45,000 mark.

A tax designed for the wealthy could soon affect some 10m workers – including nurses, policemen and teachers as well as ‘the rich’.

6. Basic rate income tax

Again, the basic rate of income tax is likely to remain at 20pc.

But the Coalition has already raised the personal allowance – the amount people earn before they start paying income tax – from £6,475 to £10,600.

The Tories and Lib Dems have promised to raise it to £12,500 by 2020. Rather than go further, a Conservative chancellor may be tempted to drag more people out of tax altogether by raising the National Insurance threshold.

Labour has promised to reintroduce a 10p tax band for low earners – undoing one of Gordon Brown’s greatest mistakes. Brown abolished the 10p starting rate of income tax in 2007 – prompting a revolt among Labour MPs.

However, reinstating it could also mean slowing down increases in the personal allowance, meaning it wouldn’t really be much of a tax cut at all.