How the Parties Are Planning to Spend Your Money

Undated file photo of a piggy bank and sterling pound notes. (Gareth Fuller/PA)

Regardless of which party will win the general election on July 4, the next UK government will inherit the highest debt level in over 60 years, the highest tax burden in over 70 years, and growing demand on public services.

So how is the next government planning to tax and spend your money?

Both major parties have avoided throwing big numbers around in their manifestos and promised more of what not to do rather than what to do.

They have promised not to hike major personal tax rates and corporation tax rates while remaining tight-lipped about some smaller taxes and potential spending cuts.

The Tories pledged £17.2 billion in tax cuts while Labour and the Liberal Democrats promised some increased tax and spending, but all by relatively small amounts.

Reform UK, which has little prospect of winning but is hoping to become the main opposition, made the boldest claims, saying it will save £150 billion to fund tax cuts and spending increase, while the Green Party made an equally massive pledge of tax and spending increase.

Analysing the manifestos, the Institute for Fiscal Studies (IFS) has criticised the lack of departmental details in two major parties’ pledges, saying they are hiding and ducking the hard choices.

The think tank also hit out at Reform and Green, saying their proposals are “wholly unattainable.”

National Insurance, Income Tax, VAT

Both Labour and the Conservatives said they won’t increase the rates of national insurance (NI), income tax, or VAT.

The Tories went further with an additional 2 pence off employees’ NI by April 2027 and the abolition of the main NI rate for the self-employed by the end of the Parliament. It also reiterated its “long-term ambition” to abolish employees’ NI.

However, neither party mentioned a reversal of freezes to personal tax thresholds, which are set to drag more people into higher tax brackets in the next three years. The Lib Dems said it would do so “when the public finances allow” but didn’t mention if they would do anything to the main rates.

Reform, which ranks third in most polls, said it would raise the income tax threshold from £12,570 to £20,000, raise the NI rate by 20 percent for foreign workers, scrap VAT on energy bills, tourist shopping, and independent schools, and lift business VAT threshold to £150,000.

Reform has also said they would “abolish IR35 rules to support sole traders” while the Lib Dems said it would review the system.

The Conservatives also said it won’t increase capital gains tax, keep the exemption from the tax on the sale of a primary home and introduce a two-year relief from the tax for landlords who sell to their existing tenants.

Labour has ruled out reforms on council tax bands while the Conservatives said they won’t increase the number of bands.

NHS

Labour, the Conservatives, and the Lib Dems made moderate spending pledges on the NHS, which budget in 2022/2023 was £185 billion.

According to analysis by the Nuffield Trust, it’s impossible to tell how much of the pledged spending will be “extra” because no information on the baselines were provided.

The health think tank projected that the pledges would “take real terms annual increases marginally higher than the austerity low point, with average increases of 1.5 percent” and leave a funding gap of £19.5 billion under the  Lib Dems’ plan, or gaps of £22.7 billion or £23.5 billion under Labour or the Conservatives, respectively.

Reform promised £17 billion for the NHS, which includes a three-year basic rate-tax moratorium for all NHS and social care staff, writing off their student fees pro rata per year over 10 years of NHS service, and other reforms.

Minimum Wage

The Tories vowed to maintain the National Living Wage at two-thirds of median earnings in each year of the next Parliament while Labour and the Lib Dems promised a “genuine” living wage.

Labour said it would remove age bands for minimum wage and have the independent Low Pay Commission take account for the cost of living while the Lib Dems promised an independent review.

Reform did not mention the policy.

Two-child Benefit Cap:

The two-child limit on universal credit, which means low-income families don’t receive additional support for their third and subsequent children, has been opposed by opposition parties as well as pro-natal Conservatives, but Labour has not committed to immediately scrapping the it despite being under pressure to do so.

The Tories defended the policy, which it said is part of the reasons for “record levels of employment and low unemployment.” In April, Prime Minister Rishi Sunak has said his party would keep the cap.

The Lib Dems, Reform,  and other smaller parties backed the abolition of the cap.

Meanwhile, the Tories plan to double the amount of free child care for working parents of toddlers and reform the child benefit system so families with a combined income of below £120,000 can keep the benefit.

Pension

Most parties vowed to protect the triple lock, meaning state pension will increase each year in line with inflation, wage growth, or 2.5 percent, whichever is higher.

The Conservatives promised a “new Triple Lock Plus,” saying tax-free personal allowance for pensioners will also rise by the triple lock.

The party said it will maintain all current pensioner benefits and is “carefully considering” a report published by the Parliamentary and Health Service Ombudsman on so-called WASPI women (Women Against State Pension Inequality), but no party has committed to paying compensation.

The ombudsman found that WASPI women, or women born in the early 1950s, were not adequately informed of a policy change that changed women’s pension age from 60 to 65, and should receive an apology and compensation.

Reform pledged a pension overhaul, and said it would “end the mineworkers’ pension scandal,” referring to a rule that allows the government to take half of the scheme’s surplus cash. It also said UK pension funds should own half of each utility while the other half needs to be brought into public ownership.

Labour and the Lib Dems plan to tighten rules to require pension funds to align their investments to climate goals.

Net Zero

The Tories said they will not introduce more green levies, invest £1.1 billion into the Green Industries Growth Accelerator, scale up nuclear power, and deliver a new gigawatt power plant.

Labour announced a £4.7 billion Green Prosperity Plan package, and both Labour and the Lib Dems plan to increase windfall tax on oil and gas companies.

The Lib Dems also said it will introduce super tax on private jet flights and reform aviation taxes.

Reform said it will scrap net zero and its related subsidies, claiming the move would lead to £30 percent of savings per year for the next 25 years.

Defence And Foreign Aid

The Tories, Labour, and the Lib Dems said they will increase defence spending to 2.5 percent of GDP, but only the Tories gave a deadline of 2030.

Reform made the biggest promise on defence spending, saying it will be increased to 2.5 percent of GDP by year three and 3 percent within six years.

On foreign aid, the Lib Dems said they will reverse the post-pandemic reduction and return the level to 0.7 percent of gross national income, while the Tories and Labour promised to do so when fiscal conditions allow. Reform vowed to slash foreign aid by half and review the effectiveness of overseas aid.

Details Unclear

Both Labour and the Conservatives have remained largely silent on a range of taxes such as fuel duty and inheritance tax.

With defence spending increasing along with health spending, a reversal of previous trends, and a tight spending envelope, both major parties have staked hopes of maintaining public services on revitalising the economy and boosting public sector productivity.

Presenting IFS analysis on Monday, Paul Johnson, director of the think thank, said even if the next government “gets really lucky” and sees a 0.5 percent growth in GDP, the extra revenue would “do little more” than allowing it to avoid spending cuts that are currently pencilled in.

He also said the current plans are “for big real-terms cuts to investment spending—of £18 billion a year by 2030” and that the country will face the “trilemma” of tax increase, spending cuts, or more borrowing.