How similar are Labour and Conservative tax policies? (15 marks)

I got 15 / 15 for this essay. It's up to date and relevant for the January 2012 exam. Although, you can use it after but may need to update the coalition part. 

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How similar are Labour and Conservative tax policies? (15 marks)
Most policies on taxation by the Labour and Conservative party usually contradict
each other as both partys usually tend to take difference approaches. The
conservatives prefer the monetarist approach and decrease direct taxes and
increase indirect taxes such as VAT. Where as, Labour have mainly taken a
Keynesian approach since 2007 and prefer to increase indirect taxes and increase
direct tax such as income tax, although, they have had a change in approach.
Before, 2007, Labour have been quite similar to the conservative as they took a
"third way" approach towards taxation.
Before 1997, the Conservatives took a monetarist approach on taxation. There
were significant reductions in the level on income tax. Between 1979 and 1988, the
basic rate (as paid by most people), fell from 33% to 25%, and the highest rate
(paid only by the very rich) also fell from 83% to 40%. However, the decline in direct
taxation resulted in an increase in indirect taxation. For example VAT increased
from 8% to 15% and duties on petrol, alcohol and tobacco continued to rise. The
purpose of this was to entice entrepreneurs and their employees to retain a higher
profit of their incomes. This would also encourage more entrepreneurs to set up and
expand, encourage competition and reduce unemployment rates. These policies
proved to be a success especially since Labour governments after 1997 continued
to reduce direct taxation such as the rate of income and corporation tax. However,
before 1997, Labour largely accepted Thatcher's reforms on direct taxation which
should remain relatively low, which shows that their views on taxation were based on
the monetarist approach, showing consensus between both parties as they shared
a similar approach on tax policies.
When New Labour emerged in 1997, Tony Blair aimed for a cross between the
socialist policies of old Labour and the neoliberal policies of Thatcher and Major,
and so, this created the `Third way approach.' New Labour and The Conservatives
both had a similar view on taxation. They preferred increasing indirect tax as they
believed that high levels on income tax and company profits should be avoided as it
was seen as a disincentive to work, and a reduction in direct taxation would
encourage enterprise. Also, both parties agreed to weaken the power of the trade
unions to increase competitive labour markets and high inflation as seen as a
barrier to economic progress and so they both aimed to keep inflation to a
minimum. However, unlike The Conservatives, New Labour focused on poverty
reduction and they showed more concern for those on low incomes. For example,
the third way belief is that benefits can be used as an incentive to work, whereas,
The Conservatives believes it encourages unemployment. Also, New Labour
wanted to depoliticise economic manage management and believed that taxes are

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Conservatives wish to
keep economic management under political control and more concerned to keep
down the overall level of taxation. However, ironically, Labour have been heavily
criticised by the conservatives for introducing and increasing many "stealth taxes"
which are indirect taxes which contradict his policies on poverty reduction, which
caused him to reverse the stealth taxes and offer a compensation package for
lowincome families in 2007.…read more

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On the other hand, The Liberal Democrats have changed their approach from being
mainly Keynesian to mainly monetarist since 2010. Before joining the coalition, they
were the most interventionist party. In 2005, they pledged to raise the level of tax to
pay for better public services and proposed the top rate for income tax of 50% for
those earning more than £100,000 a year.…read more


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