Contractors wishing to see what the UK’s next government have in store for them will have found little to guide them in the second week of the UK’s 2010 election campaign. The main parties’ manifestos certainly did not disappoint in disappointing the contracting community with a lack of their lack of transparency, detail and fresh thinking – particularly on how to get the economy and public sector deficit out of the mire.
And whilst it provided all the appearance of a real clash of ideas, Thursday evening’s first-ever televised debate between Gordon Brown, David Cameron and Nick Clegg did not significantly progress our understanding of what the parties would do for Britain, the economy and contractors.
The devil’s in the detail – but there is no detail
The underwhelming lack of detail in the Labour and Conservative manifestos leaves little to actually analyse, but each party has made a bid to capture familiar ground, so there are few surprises for contractors to be found.
The Liberal Democrat manifesto deserves some credit for its attempts at costing its policies, but overall there appears to be little that would attract contractors, freelancers and the flexible workforce. Relevant LibDem measures include:
- Increasing the tax threshold to £10,000, a positive move that would particularly benefit some limited company and low-earning contractors
- Removing tax relief on pensions, impacting negatively on every higher earning contractor
- Raising capital gains tax to the same levels as income tax, which would stifle entrepreneurship
- Slapping a 10% levy on the banks, impacting on their bottom line and likely to make IT contractors’ lives more challenging
- An end to ‘gold plating’ European Union rules, meaning missives from Brussels will no longer automatically be implemented without question, which in the longer term could favour contractors.
The LibDem’s commitment to consult with business to identify regulations for simplification or even repeal may work in contractors’ favour, but those with high value properties will be hit by a 1% levy on properties over £2m.
Trust, tax and business from Labour
Labour’s manifesto contains much that has already been built into the recent Budget, with little new policy and very little of specific interest to contractors. There is a commitment not to raise income tax, but that is after this month’s introduction of the new 50% tax rate has already taken place.
Plus, as Labour and the last Conservative governments have proven, not raising income tax means that politicians will simply find more creative ways of raising revenue. Gordon Brown did it very successfully in his first Budget as Chancellor in 1997, by introducing his pensions ‘stealth tax’. And Brown again has pensions in his line of fire: contractors will be hit certainly by the ‘tax’ on pensions that is being introduced as a restriction on relief for higher earning contractors.
VAT will not be extended to new categories, says Labour, but that leaves plenty of room for it to increase to the 20% headline rate favoured in much of the rest of Europe. And corporation tax for small businesses, like those run by limited company contractors, will increase next year to 22%.
Conservative pledges
Following an emergency budget scheduled within 50 days of winning the election, the Tories have pledged to review business regulations, including IR35. Whilst this may superficially be a welcome move, the adage, ‘be careful what you wish for’, comes into play, as any replacement for IR35 could hit contractors even harder.
Small business taxation will also come under the spotlight and the Conservative’s new Office of Tax Simplification, which Tories say they will create to develop a ‘fairer’ tax regime for all. The much talked about ‘tax on jobs’ – Labour’s planned increase in National Insurance Contributions (NICs) – would be scrapped. That would be welcome for contractors running their own limited companies, who would be hit both as employers and employees.
Can the LibDems quickly establish business credibility in time to make an election difference?
Limited company contractors will see their corporation tax fall to 20% and knowledge workers may benefit from R&D tax credits. Property owning contractors will benefit from the proposed increase in Stamp Duty threshold.
Big society v big brother
Some cracks between the main parties are starting to appear, particularly when it comes to society and business, with Labour appearing to believe that UK businesses cannot possibly find their way out of the economic downturn without government assistance.
The Conservative Party offers an extreme alternative, where every UK subject will have the opportunity to become part of the new administration. One wonders, therefore, quite what an elected Tory government would actually do, if the people were running the show?
And following yesterday’s historic live television debate between the three main party leaders, a new power has emerged in the form of Nick Clegg and the Liberal Democrat party. Can the LibDems quickly establish business credibility in time to make an election difference?
Let’s hope week three of the general election campaign will bring greater clarity.