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What the hung Parliament could mean for tax
For a change, the exit polls were right: the election on 8 June resulted in a hung Parliament, with no party having overall control and thus being unable to form a Government on their own. Mrs May’s call for “strong and stable government” fell on deaf ears, and, whoever forms an administration, it seems most unlikely that it will be either strong or stable.
Voters may have had other matters on their minds, but tax advisers have been particularly exercised by the large quantity of very important tax legislation proposed by the Conservative Government in the last draft Finance Bill that could not be enacted when the snap election was called. This legislation covered a wide range of issues, including the reform of dividend taxation, wholesale changes to the taxation of non-doms and “making tax digital” (“MTD”), which would require businesses and the self-employed to file tax information online throughout the year.
Most tax advisers had not entertained any serious doubt that most of the changes previously announced but dropped from the Finance Bill would come into effect. It was felt that it was a matter of when, rather than if. Now, things look rather different.
The uncertainty for long-term resident non-doms has been of particular concern; what appeared to be the settled outcome of a consultation which had lasted almost two years, and had gone through a number of changes in direction along the way, appears now not to be settled at all. These changes were due to take effect from 6 April 2017 and it is clear that many of those affected have already begun to arrange their affairs on the basis of the proposed legislation in the draft Finance Bill – which they might now have cause to regret. It is very much to be hoped that whoever forms the next administration does not delay in clarifying the position for those affected.
Many of the professional bodies had already counselled Government to delay MTD without success, but it now seems that there may be no option but to defer implementation. The likelihood is that this will be broadly welcomed.
Leaving aside the Finance Bill, there is obviously some doubt about the future direction of tax policy in a hung Parliament. Clearly, as matters stand, neither of the main parties will be able to implement their full policy programme. Labour’s tax policies, although controversial, were clearly set out in great detail in their manifesto and policy documents. Although the Conservative manifesto was remarkably short on detailed policy, it was not difficult to discern their general direction of travel; lower tax rates for business, coupled with attacks on the “gig economy”, marketed avoidance and evasion.
A minority government will almost certainly have to rely on informal and temporary political alliances to support their tax proposals, at least until the next decisive election. The consequence is that tax policy is likely to lose such direction as it has. Tax advisers frequently bemoan the lack of joined-up thinking in much of the UK’s tax legislation and it is likely that a piecemeal approach to future tax changes will only make this worse.
If the Conservatives form the new minority government, the broad direction of policy is unlikely to alter materially, although there is very little chance that they would dare to introduce any controversial changes such as the increase in Class 4 NIC for the self-employed that Philip Hammond proposed and was forced to withdraw in his March budget. If Labour was able to form an administration, its Robin Hood vision of taxing the rich and big corporations and giving to the poor is most unlikely to materialise. A government of any colour will have to recognise that a proportion of opposition to its manifesto will come from within its own ranks; opposition that it is relatively easy to silence when you have an outright majority but that tends to become more vocal and significant when every vote counts.
Interesting and unpredictable times ahead.