George Bull, senior tax partner at Baker Tilly takes issue with the raft of tax policies and unfunded goodies to entice voters based on last-minute tax grabs, arguing that earmarked - hypothecated - taxes like the mansion tax to fund the NHS and Libor fines to pay for apprentices do not make sense in the long-term
In the run-up to the 7 May general election, the main political parties have been promising to introduce new taxes and levies which they will use for specific purposes.
The Conservatives plans to use Deutsche Bank LIBOR-fixing fines to fund 50,000 apprenticeships while Labour’s proposals for a mansion tax and levy on tobacco companies is designed to raise an extra £2.5bn for the NHS a year and it will restrict tax relief on pension contributions to cut university tuition fees. Meantime, the Liberal Democrats speak of a supplementary corporation tax charge on banks to pay for ‘fiscal consolidation’. And so it goes on.
This earmarking of a tax or levy for a particular expenditure purpose is known as hypothecation. On the face of it, committing a new tax to a particular social purpose sounds like a good idea. But will it work in practice? And how will we know?
