Labour's Landslide UK Election Victory Spurs Calls for Tax Simplification

Following the Labour Party's overwhelming victory in the UK general election on July 4, tax experts are advocating for the reintroduction of the Office of Tax Simplification. The Labour Party, led by Keir Starmer, secured a significant majority of over 170 seats in the House of Commons.

Labour shadow chancellor Rachel Reeves has previously committed to not increasing corporation tax (CT), VAT, income tax, and national insurance, capping CT at 25%. She indicated that no additional tax rises are planned beyond those outlined at the annual Labour Party conference last year. The party also aims to close the UK's tax gap by strengthening HM Revenue and Customs (HMRC) with an extra £555 million ($710 million) annually, targeting an additional £5.1 billion a year by the end of the next parliament through enhanced tax compliance measures.

Elizabeth Bradley, a London-based partner and global tax group leader at law firm Bryan Cave Leighton Paisner, noted the "light touch comment" on tax in Labour’s election manifesto, suggesting it gives the party flexibility to introduce further policies later.

Chris Denning, a tax partner at advisory firm MHA in the UK, urged Reeves to carefully consider the strategic role of the country’s CT regime in fiscal planning. "The corporate regime needs to be used as a platform to create growth and investment. Committing to a 25% CT rate for the lifetime of the next parliament is not a positive message for the UK [in terms of] being seen as a competitive global economy. The chancellor should set out a roadmap now with a commitment to reducing the CT rate within the short-term towards the OECD’s global minimum tax rate of 15%,”.

Philip Harle, a UK tax partner at law firm Hogan Lovells, remarked that Labour's election victory had an impact even before it occurred. "Labour’s victory already started affecting the tax landscape well before it happened – a Tory government confident of a win would not have adopted Labour’s non-dom policy.” A ‘non-dom’ refers to a UK resident whose permanent home, or domicile, for tax purposes is outside the UK, who only pays UK tax on money earned within the UK and not on income made outside the UK unless brought into a UK bank account.

Harle added, “Both party manifestos were somewhat tentative on tax, with little offered by way of tax cuts from the Tories, little by way of tax rises from Labour and a lot of promising to maintain the status quo. Labour have won a landslide victory on the back of a promise of economic stability, so despite the size of the majority, it is unlikely we will see anything radical at first.”

The Labour manifesto’s reference to “building capacity” within HMRC could be advantageous for businesses, according to Harle, as it may reduce the time required to engage on complex tax issues due to better HMRC resources. Harle hopes businesses can expect a period of relative stability on the CT front, with Labour’s promised single annual budget being a welcome change.

Tax experts are also pushing for the reintroduction of the Office of Tax Simplification, which was abolished in 2023. Andrew Snowdon, London-based chairman of UHY National Tax Group, insists that tax simplification must return to the agenda. “It seems that both main political parties have given up ambitions to at least keep the amount of tax red tape in check. A properly empowered Office of Tax Simplification should be reinstated,” Snowdon stated.

Phil Blackburn, senior tax partner at accountancy firm Lubbock Fine, supports the return of the Office of Tax Simplification, saying, “The Office of Tax Simplification did excellent work in helping to make tax in the UK easier to understand. A system that’s easier to understand is a fairer and cheaper system to deal with for everyone.”

Meanwhile, Robert Marchant, partner and head of tax at accountancy firm Crowe UK, cautiously welcomes Labour’s commitment to raise £5.1 billion of additional tax by curbing tax avoidance, provided the measures do not disproportionately impact the innocent. “Our tax law is becoming so complex it is all too easy for individuals and organisations to make innocent mistakes,” Marchant stated.

While the UK electorate has shown strong support for Labour, Keir Starmer’s party evidently has more to do to fully win over tax advisers.

By fLEXI tEAM