Overall this was a delightfully dull Budget.
Yes, it was a missed opportunity to deal with all the things that the government is doing wrong in the economy – the runaway unfunded pension costs (the State pension and also the much higher pensions for retiring government employees), the burgeoning benefits bill, the shameful numbers of young people ‘not in employment, education or training’, the huge deficit, ever-growing government debt, and interest payments thereon… you get the picture. But that was never going to happen.
Overall the Chancellor made some nice noises about business, and its founders and investors, but failed to do very much to relieve the burdens on them. But it was mostly a fairly modest Budget and so isn’t likely to cause any huge problems. Compared to some of his predecessors huge errors - hiking corporation tax by a third, after decades of reduction or stability, or abolishing the long-standing and highly successful non-dom tax regime - the irritant of having to deal with lots of small-scale changes is almost a relief.
But what did happen? Let’s have a look at some of the less talked about changes.
Top on the list of irritations has to be now he is handling the increased income tax allowance for pensioners. Or, rather, for some pensioners, since it is carefully crafted to be available for as few people as possible. If you have any income above the standard State pension, your extra allowance will be rapidly taken away from you.
I think that’s going to mean people with a very small employment pension on top of the State pension will face an effective tax rate of 26.7%, but in terms of Labour’s manifesto promises I suppose pensioners are, by definition, not “working people”.
This is irritating not just because it is going to be fiddly, adding complication to an already complicated system, but also because the whole thing is the government’s own fault. The problem only came about because the income tax threshold has not kept pace with inflation, but State pensions have, so inevitably the pensions will catch up with the allowance. Had successive governments uplifted the personal allowance properly, this problem would not have arisen.
Winner of the anti-growth ‘shoot yourself in the fiscal foot’ award probably goes to the ban on treating the set-up costs of a UK company’s foreign branches as tax-deductible. Surely we want to encourage British businesses to go global?
Despite the Chancellor’s claim to understand the benefits small businesses bring, and the risks their owners take, he is adding more to their administrative overhead. In particular the compulsory online reporting of company cars and various other benefits-in-kind, due to come in from next April for some benefits, and April 2028 for the rest. Unlike the ‘Real Time Information’ system for profits tax, this does not depend on the size of the business, so even the smallest will be caught if they ever employ anyone.
The Chancellor’s announcement of higher mileage allowances for income tax would have pleased many people so drive a lot for business, and seemed aimed at Red Wall ‘white van man’. But what he didn’t mention was the tax raid on company car drivers, for which the taxable value is going to increase. You will not be surprised to learn that the tax increase is set to raise more money for the Treasury than they will be ‘giving away’ through the increased mileage allowances.
Biggest damp squib has to be Founders’ Relief, which theoretically reduces capital gains tax on the sale of a private company from 24% to 10%, on up to £10 million of gain. We knew that this was going to have quite tight restrictions, because the Chancellor is also keeping the overlapping Entrepreneurs’ Relief. But once the details came through it was even more restrictive than expected, so that even the Treasury think only a few hundred people a year will qualify. That isn’t going to do much to revitalise the British economy.
Tellingly the estimated ‘cost’ to the Treasury of the new relief is almost exactly the same as the amount they expect to raise by restricting the much more reasonable Business Asset Disposal Relief (what was Entrepreneurs’ Relief).
The ‘how to make the cost of living crisis worse’ award goes to the increased requirement for online marketplaces (ebay and suchlike) to add VAT onto the prices charged by traders selling through them. For those of us who have tried to save a few pounds in these difficult times by shopping online, some of those purchases may just be about to get 20% more expensive.
Perhaps my favourite tax hike is the plan to tax “image rights payments related to an employment” as employment income. Admittedly this is a bit obscure, but it is mostly designed to catch a particular form of celebrity tax avoidance. Normally I would be against increasing taxes on highly mobile workers, since they usually lose more than they raise, but in this case I cannot help suspecting that many of the people caught will have signed the “Patriotic Millionaires” petition to increase taxes on other people that, thanks to this type of scheme, they are not paying themselves. My only regret is that it didn’t look like Gary Lineker uses this sort of arrangement.
The other candidate for ‘favourite tax increase’ (admittedly a very small group) is that payments by HMRC to tax informers will have higher rate tax deducted from them. Watching people being hoist by their own petards is a guilty pleasure.
One that I missed last time is the International Student Levy, £925 to be paid by universities when they take on a foreign student. The average cost to a Russell Group university is looking like £10 million. Although normally I would be against tax increases on what looks like a highly successful export business, in this case I would only propose an exemption for any university where none of their staff has written a paper calling for higher taxes on other businesses.
Finally, I note that one of the unannounced Budget schemes is called “Help to Save Reform”. It turns out this is actually the reform of an incentive called “Help to Save”, but unless the Chancellor can let the economy turn itself around before the next election, I suspect my initial misreading will turn out to have been an accurate description of this Budget.
Richard Teather