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You’ll find a sensible guide to the Budget on the “documents” menu on the right of this website.
This page is simply our tax director (Donald Parbrook) having a bit of a rant.
Having devoted my pre-Christmas blog to comparing Mr Brown and the Labour Government as the crew of a sinker cruise liner I was tickled pink to hear David Cameron describe Mr Darling in the same way today. Perhaps he follows my blogs….on the other hand….
I took some time last night whilst out cycling - www.milnecraig.co.uk/view_product.asp?fld_product_id=22 to try to think about something useful to say about the Budget. I really just want to scream "It's a con" but I guess I should at least try to get enthusiastic about the "highlight" of the tax calendar.....
Cameron was right about one thing, the substantive news in the Budget could have been delivered in 2 minutes flat. The main news in the media is the Stamp Duty break for first time buyers – 250,000 limit. Can’t get excited – 1% is not a big deal to most people and it’s a temporary relief. However from 2011 there’s a 5% SDLT rate for transactions over £1M – and I guess that will apply to commercial and residential deals – so that really will make a difference!
Otherwise, clients with their own businesses will be interested to know that the "Annual Investment Allowance" will rise from £50,000 to £100,000 per annum - this is the amount of capital expenditure that gets an immediate tax write off in year one. Quite a helpful change for some taxpayers with large capital spend.
Otherwise, contrary to worries about the 10% and 18% capital gains rates, these were left intact and the 10% rate can now apply to £2 million in lifetime (gains on trading assets/shares in trading companies you work within generally). This is good news…right up until Mr Osborne reverses it ?.... if elected.
A bit of stealth was confirmed - with no increases in personal allowances etc - so with inflation at 3% we're all going to be worse off. And, of course, no reversal of the hideous 50% and 60% (effective) tax rates on offer for high earners.
I can't help but comment that the Chancellor’s speech was truly appalling - the most "lightweight" Budget speech I've ever had to endure. Even after a decade of Gordon Brown carping on about how well he was doing each year, I was stunned to hear Mr Darling congratulate himself on the job he's been doing! I thought he knew better - pride comes before a fall.... I hope.
The speech sounded to me like a lecture to a left wing think tank – full of pompous boasts about how they were “right on the recession and right on the recovery” – do people really believe that utter hogwash? Are the voters that naïve? The Tories may not have got it right either but I seem to remember that as late as 2007 all Mr Darling/Brown were saying was that we were headed for never ending growth – no more boom and bust!.... and that we were uniquely well placed for a short recession - all total nonsense. It was, after all, these very same politicians that mistook the tax receipts of a debt fuelled bubble for a structural change in the country’s fiscal fortunes and spent the lot – and more besides – each year - leaving us in serious trouble with a massive annual deficit. The Budget did nothing substantive to reverse the deficit. Indeed the theory behind coming back to balance (never mind having a surplus and reducing the national debt) is that we'll have rapid non-inflationary growth from 2011 onwards... what tosh.
While I am having a rant please can I ask that the nation stops celebrating the idea of £167Bn of borrowings in this financial year, simply because we thought it would be £178Bn. It just shows that the forecasts are always wrong – nothing more or less. And, whilst I’m raving and havering please can you all remember that when Mr Darling says
”I’ll halve the deficit by 2014” or “We will halve borrowings by 2014” – what he means is our national debt will be growing half as fast by then – not that we’ll have repaid any of our then £1.4 TRILLION national debt.
I’m afraid that even if we presume we don’t have a double dip or sovereign debt crisis (I’m not ruling both out for 2010 or 2011) our national finances are an utter disaster. There’s no other way to say it. We will have to service interest on national debt from taxes for years to come – reducing the amount of public money available for worthy and necessary matters, and crippling us with higher taxes for decades. The “age of austerity” is going to come – and by delaying it through living beyond our means we are making a long and deep period of gloom more probable. I'm afraid Mr Darling has not taken any of the "difficult decisions"! I would say the difficult decisions are -
1. Reducing the amount of people reliant on the state (whether through employment, unemployment or otherwise) and getting them into the productive side of the economy;
2. Dealing with our scandalous public sector pension timebomb - we cannot have a system where the private sector funds massively generous future pensions whilst being unable to fund their own (partly because Mr Brown whipped the tax credit away in 97).
If it wasn't so serious I'd have laughed- does Mr Darling really think that in delaying the fuel duty rise (partly) and by raising stamp duty on expensive property that he'll really manage to reverse the borrowing headache? It's a bit like taking paracetamol to deal with a severed limb - it's just not happening is it?
That said, he did give me a jolly good laugh when he announced he was getting a tax information sharing agreement with Belize. This little poke at the Tory deputy chairman was clearly something Mr Darling couldn't resist. 2 years ago when Mr Brown "bottled it" on an election he said "this is no time for novices".. I said this is "no time for numpties" either. It does seem to me that Mr Darling lives in a parallel universe where the FT and the other broadsheets are not given to him, where the raw economic data is ignored. Or maybe, just maybe, he simply thinks that if you're sinking fast you might as well go down with a smile on your face.
In any case, I’m not an economist. I continue to advise high net worth clients to take advice before 5th April on how to ensure they avoid 50% or 60% if they can (for 60% is your tax rate between 100k and 113k of income from 6/4/10). I notice a little reference in the Budget to bringing forward measures in Autumn this year to counter avoidance based around the 50% tax rate - what these will be is anybody's guess. It is always thus with high tax rates and unfair tax rules - people seek to avoid and a game of "cat and mouse" begins. It may be time that we accept that VAT is easier to collect - raise it to 25% and slash all income and corporation tax rates to a level where people don't bother avoiding them.....too radical? I suspect so - shame really as the UK was once quite a forward thinking country.
Contrary to what you may think I am also dismayed by the other side of “the House”. Talk of banker bashing may go down well with many voters but as Mr Darling himself noted, 25% of corporation tax receipts came from financial services along with a huge amount of income tax. Why are we so intent on getting rid of the greedy banks and the greedy bankers? Could it possibly be because we are nation governed by the “wee people”? Are we ruled by a class of jealous and envious people who still see the idea of becoming filthy rich as wrong ? I will leave it for you to judge. I only make the observation that whilst I dislike greed for the sake of greed, I’d far rather have (say) 30% tax off a super-rich banker than nothing at all – you don’t bite off the hand that feeds you and you don’t slaughter the golden goose because you’re hungry (even if it is quite a nasty goose at times).
Please do read the sensible Budget summary on the right of this website. Arguably, Darling finally delivered a good result –a Budget speech "long on rhubarb and short on meat". And, as a result, the tax legislation won’t be increasing too much this year….or not unless Mr Osborne is “next up” for another 2010 Budget in the summer!
***PLEASE NOTE THIS RANT IS THE PERSONAL BLOG FOR DONALD PARBROOK, CHARTERED TAX ADVISER, THE TAX DIRECTOR WITH MILNE CRAIG, AND NOT THE VIEWS OF THE FIRM OR HIS COLLEAGUES***
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