Financial experts are warning voters to be careful which shade of government they wish for in the forthcoming UK general election.
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Voters are set to go to the polls in May, and each party is arguing how they will deal with the nation’s £1.4 trillion spending deficit – but analysts suggest no politician is giving an entirely honest explanation of their economic plans.
The Institute for Fiscal Studies has looked at post-election tax and borrowing statistics after a six general elections and discovered new governments have introduced tax hikes averaging £7.5 billion a year in the 12 months following their ascent to power.
An in-depth study of each party’s fiscal plans by economists for the Financial Times also reveals each government’s published spending promises all have a gap to plug.
And that gap will probably be filled with money raised by extra taxes.
Extra tax
The Tories have a 2% gap planned and announced ‘fiscal tightening’ or spending cuts. For Labour its 0.6% and for the Lib-Dems, it’s 0.8%.
So on past performance, the extra money is likely to come out of the pockets of voters.
The question for voters then becomes not if they have to pay any extra tax, but how much and who pays.
The likelihood is Labour will follow their policy of redistributing wealth from the richest to the poorest, making top earners contribute the most.
The Lib-Dem’s are likely to tread a similar path, while the Tories have played a clever game of seemingly cutting taxes but raising the thresholds at which earners pay at higher rates.
For ordinary voters, extracting more corporation tax from big businesses which shelter their profits in more tax friendly environments is probably the easiest way to raise the most extra cash to prop up the economy.
Lower dividends?
For investors, a change in government is unlikely to affect stock markets too much. These tend to soldier on regardless and are becoming more linked into global economic and geopolitical trends than those on the home front.
However, tinkering with tax on profits could mean lower dividends for shareholders.
Property investors should note both major parties have let slip they intend to shake up the buy to let market.
The Tories plan a major market review by the Bank of England to see how private rented homes stress the economy, while Labour are murmuring about rent controls and curbs on letting agent fees.
An interesting point is Labour are fishing for tenant votes, but fail to realise behind every tenant is a landlord voter.
In the end, who cares who wins – inevitably voters will pay more tax for less services.
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