TAXES UP, PETROL UP, FOOD UP, CONFIDENCE DOWN.

Many of us who work in tax have been disappointed at the continual quiet increases in tax costs via the "Back Door" - the so called Stealth Taxes.  However, as we hit a harder economic climate there appears to be no scope to cut taxes.  This must mean we should expect "no change".  The current Government claim that our high fuel prices are caused by the rise in oil prices is not really true - the increase might be due to the change in oil pricing but the high cost overall is largely down to tax - that's why our fuel prices are about 30% higher than in the EU otherwise.  However, the fall in other taxes as the economy slows probably means there's no room to reduce this burden.

Worrying for those who hope for the "tax take" to fall as a percentage of GDP is the news that Unison anticipate strikes in the public sector as demands for huge cost of living pay increases pile on. 

The Unison argument (put to me on the radio last week) is that if public sectors workers don't get pay rises in line with the true increase in the cost of living (10%+ apparently) they are "taking a pay cut in real terms".  I had no idea that the public sector employees had some kind of an absolute right to an ever improving personal standard of living!  If workers in the private sector suffer a loss of disposable income because fuel and food prices rise then why shouldn't the public sector suffer likewise?  If I follow Unison's idea through the idea is that the public sector gets 14% pay increases (like those pesky lorry drivers)....meaning more tax needed to fund this....meaning we all need even bigger pay rises in the private sector if we are to avoid a "pay cut in real terms" after tax increases and cost of living changes. 

Whilst I have no doubt the cost of living increase is painful, we are all "in the same boat" and I don't think the private sector is proposing average 10% + pay increases at a time when the economy is weak.  At least the public sector workers still enjoy full final salary pension rights (open to new members!) underwritten by the taxpayer.  So, unlike the rest of us, if the stock market falls their pension expectation doesn't weaken.  

In any case, I've promised my blog will focus more on tax news than politics.  Some of you may have noticed that HMRC are closing down 19 Scottish tax offices with a loss of 750 jobs.  This is supposed to be part of an efficiency drive and will improve service....  It is a consistent complaint of accountants that the service standard at HMRC gets worse every year.  It is increasingly difficult to get to speak to anybody with a general query and staff generally refuse to give their surname or other identifier to callers.  Contrast this with the American system where the IRS staff give their staff number to each caller so that you can identify them if you later need to.  It is worrying for Scottish taxpayers that a raft of smaller offices are to close as it is our experience that the quality of Inspectors working within these local officers is often better than in the larger offices.  The smaller offices often contain the more experienced career inspectors.  Many of these staff will opt for the early retirement package rather than relocate or commute a long distance.  My forecast for 2008/09 forward is that HMRC will get increasingly ruthless and will start to use their new extended powers (right of unannounced entry, for example) with less caution than ever before.  The pressure is clear from dealings with HMRC officers - they want money and they want it now.

Tax as a press topic has been a little less "high profile" than it was a few months ago but practitioners are probably still very worried by the U-turn on the 10% tax band - achieved by making mid year changes to personal allowances and top rate bands.  For the average tax payer this will make no difference and the lower earners will be rightly happy.  However, how much money will be wasted making the "mistake" then fixing it?  Similarly the Government caused an enormous waste of money when he brought forward plans to allow residential property investment by pension funds to a fanfare then withdrew the plan just before the start date as he thought it might result in a tax advantage to people  In the interim months many thousands of hours had been ploughed into marketing ideas around the tax change.  It seems there is a need to make fanfare headline grabbing changes without "thinking them through" properly.  The planning gain supplement (axed) and the plans to tax income of one spouse on another if tax avoidance was a motive (long grass) are also good examples of money wasted.

Turning back to petrol prices, I noticed the 40p per mile rate (for 10,000 miles per tax year then 25p) that you can claim from an employer for using your car for work hasn't increased at all despite the dramatic change in fuel prices.  The Government apparently thinks the rates are still a fair recompense for running your own car for work.  It interested me that MPs are lobbying for an increase themselves - apparently they used to have a higher rate.  And, interestingly, MSP's rate for the last tax year was 49.3p per mile (uncapped as far as I can see)!  Hopefully the rate for "ordinary people" will increase soon.  The rates for using a company car for business (where you claim fuel) have risen - the latest rates are on the HMRC website and it's worth checking from time to time.

Finally, we have posted our quarterly tax newsletter on the website - if you look to the menus on the right click "quarterly newsletter" - that has the real technical stuff!

Have a good summer!

This blog is written by Donald Parbrook, tax partner at Milne Craig.  His views are personal and may not be those of the other partners or the firm.