Taxes along the 'blue wall' emerge as a key UK election battleground

Britain's three main political parties all want to be seen as having the best plans for reducing the tax burden on voters

The tax burden on voters is shaping up to be the major battleground in the UK's general election expected later this year. PA

Jonas Gahr Stoere is not a name that trips lightly off the tongue of British voters but his loss in Norway's 2017 general election is one that haunts the UK Labour party as it looks to convert its 20-point lead in the polls to victory in the 2024 race to Downing Street.

Morgan McSweeney, the electoral guru appointed by Keir Starmer to win the election, used Mr Stoere as an object lesson for the party is a slide show presentation. The lesson was that Mr Stoere's 37 per cent to 23 per cent lead in the polls in 2016 had evaporated by 2017 and Conservative Prime Minister Erna Solberg was re-elected.

The reason for the shock defeat – a highlight of Mr McSweeney's pep talk “How to Predict the Weather: The Polling Leads Edition” – was Mr Stoere's promise to raise taxes.

Tax is the key battleground of the forthcoming British election. Mo parliament in history has raised the tax burden so high. Mr Starmer and Prime Minister Rishi Sunak know that sounding the right note on taxes is key to the outcome.

Mr Sunak spent the first week of the new year heralding Saturday's cut in the payroll, the National Insurance levy, from 12 per cent to 10 per cent, claiming to deliver tax cuts for 27 million people, worth on average £450 a year.

He even highlighted taxes as the reason for pushing an election into the second half of 2024.

“I want to keep going, managing the economy well and cutting people’s taxes,” he said.

True to his strategists' formula, Mr Starmer is making no promises on taxes until the economy, currently on the brink of recession, starts improving.

“The first lever that we want to pull, the first place we will go, is growth in our economy,” he said on Thursday.

UK opposition parties are hopeful the government's promises on headline tax cuts will fall flat because people have never paid more tax and under Mr Sunak's Chancellor Jeremy Hunt, things will stay that way. His autumn statement revealed that income tax thresholds will stay frozen until 2027/28.

The picture of a squeezed electorate drives most analysis of the 2024 election. A large slice of voters in the UK are defined by polling work from the Portland agency as apathetic. The latest figures suggest 13 per cent fall into the apathetic category, with the cost of living of highest importance. According to this poll, only 2 per cent of these voters think the government is doing a good job, compared to 83 per cent saying it is doing badly.

While the apathetic are for now mostly lower income, the danger for the government is an ever wider net of potential voters is being pulled into the tax net and thus at risk of alienation. Wage growth in regular earnings ran at 7.3 per cent in the period between August and October last year, pushing more and more people over the line.

This is known as fiscal drag and becomes particularly pronounced in more affluent areas, as salaries increase in line with inflation, but tax thresholds don't.

Taxpayers in London and the South East are hardest by Mr Hunt's decision to freeze income tax thresholds in the year British voters go to polls, according to new research commissioned by the Liberal Democrats.

“1.1 million people or one third of all those being dragged into the higher rate in the coming years will be in either the capital or the South East,” the document said.

UK tax falls into a few bands: the first £12,571 of a person's salary is free from tax, referred to as the personal allowance. Between earnings of £12,571 and £50,270, a 20 per cent tax is levied in the basic rate band. A 40 per cent charge is made in the higher rate band on earnings between £50,271 and £125,140 and earnings over £125,140 are subject to an additional tax rate of 45 per cent.

According to the Office for Budgetary Responsibility (OBR), the frozen tax thresholds mean by the end of the 2028/29 tax year, nearly four million additional people will be expected to pay income tax, three million more will have moved to the higher rate and 400,000 more on to the additional rate.

This means that there will be more taxpayers at each level – 11 per cent in the basic rate band, 68 per cent at the higher rate and 49 per cent at the additional rate, the OBR said.

In London, the Liberal Democrats claim the average household will be paying £1,340 more a year in income tax by the 2026/27 tax year, higher than anywhere else in the UK. In the South East, households are set to pay an average of £1,300 more, compared with an average rise of £900 per household in the North East, the Liberal Democrats research said.

“Jeremy Hunt claims he’s cutting taxes, but in truth he’s raising income tax for millions of hard-working families,” said Liberal Democrat Treasury spokeswoman Sarah Olney.

“Under this Conservative government, families are facing soaring mortgage payments, skyrocketing energy bills and now this endless stealth tax squeeze.”

The Liberal Democrat research, which was carried out in conjunction with the House of Commons library, claims the tax threshold freeze is a particular danger to the Conservative Party's “blue wall”, a set of traditionally Tory-voting constituencies in London and the South East that are now vulnerable to political swings. The potential for “blue wall crumbling” was illustrated by the Conservatives losing Canterbury to Labour in 2017 and St Albans to the Liberal Democrats in 2019.

Labour fired a salvo in the battle for the British taxpayer with the introduction of a tax calculator website. Called the Tory Tax Calculator, the website tool enables people to input their salary to find “how worse” they are under the Conservative government. Users have to input a name and email address to discover the answer.

According to Labour, since the 2019 election campaign, during which former prime minister Boris Johnson pledged no new tax increases, there have effectively been 25 tax increases.

Using calculations made by the OBR, Labour claim that for every £10 the Conservative government has raised in the past 12 years, it has given £2 back.

Falling inflation

Mr Sunak used remarks on Thursday to point out that the falling rate of inflation in the UK will pave the way for significant tax cuts before the general election, widely expected to be called before the summer.

Inflation, as measured by the Consumer Prices Index (CPI), rose by 3.9 per cent in November last year, down from 4.6 per cent in October. In January 2023, it was 10.1 per cent.

But even though inflation is falling, interest rates, currently at 5.25 per cent, are not expected to follow suit until the later half of 2024, with many economists predicting a recession in the UK at some point this year.

In addition, the rise in interest rates from 0.1 per cent to 5.25 per cent in fewer than two years added about £60 billion to the UK's annual debt servicing costs, equivalent to the entire defence budget.

But if interest rates fall as expected in 2024, debt cost will lower as well and Mr Hunt should have some headroom to potentially bring in tax cuts of one sort or another.

That headroom, according to Oxford Economics chief UK economist Andrew Goodwin, could be as much as £11 billion ($14 billion).

Tax-cutting budget

The spring budget on 6 March will be the last chance Mr Hunt has to make significant tweaks to the burden of the British taxpayer before the next general election.

Some speculate that the Prime Minister and Chancellor are coming under mounting pressure from senior members of their own party to make huge cuts to inheritance taxes.

Whether large tax cuts are possible is a matter of much debate. Shortly before Christmas, Mr Hunt told Bloomberg that the government plans to “cut the tax burden if we are able to”.

Despite any particular lights at the end of the tax tunnel such as lower debt servicing costs, the likes of Liberal Democrats feel it won't be enough to reverse the Tories' current standing in the opinion polls and that several blue wall seats in the South East and London are now ripe for a change in political hue in the coming election.

“Across the blue wall, lifelong Conservative voters are sick and tired of this Chancellor’s hot air and are getting ready to kick this government out at the next election,” Ms Olney said.

Mr Starmer is homing in on high taxes and higher national debt as a bad thing, too.

“Frankly, tax attacks from the Tories who’ve just put taxes up to the highest level since the war, I think, [are] certainly water off a duck’s back,” he said on Thursday.

A lesson was learnt on this from Norway, as well, where Mr Stoere dropped the tax rises talk, won the 2021 election and is now Prime Minister.