The 50 Day Budget and idle speculation

We have a new Government in place and a new fiscal policy which we will learn about in the coming weeks. We know that there are going to be tax rises and we know something of what they will be, as well as of other measures.

  • The National Insurance increase planned for April 2011 will be only for employees. The “jobs tax” element of the increase which would have been imposed by the previous administration is not going to take place; at least not until the economy and jobs market seems to be recovering.
  • The tax free income tax Personal Allowance will be increasing towards £10,000 as proposed by the Liberal Democrats, though the Government will not manage it all at once.
  • The Inheritance Tax threshold will not be increased to £1M as was proposed by the Conservatives. If it is frozen it will amount to there being a tax increase as a result of inflation within the next year or so.
  • It is presumed that there will be a cut in the main rate of corporation tax. Some have suggested that the small companies rate will be increased, but I would have thought this would be counter-productive. I can well imagine that the Annual Investment Allowance will be abolished. This is of little help to small companies anyway.
  • There is likely to be an increase in the rate of capital gains tax to closer to the income tax rates and possibly to the higher rates. The Prime Minister has virtually promised this with an acknowledgement that the rate of CGT on sales of businesses will be lower to continue to encourage entrepreneurial spirit. It has been suggested that the annual exemptions for small gains will be reduced to £3,000 or lower, but I would have thought this administratively impossible and the tax take would not cover the cost of recovery. Many who do not currently submit tax returns would have to do so.
  • Fuel tax may be increased again but…
  • …given the speculation that we will see an increase in VAT to 20% there would be a significant extra tax take on fuel anyway.

VAT is the instant producer of tax for the Exchequer. It will start the inflow quickly. There are some models of the economy which suggest that an increase will dampen the recovery. However, as with models for climate change forecasting, it depends which data is selected as relevant. VAT is a tap which the Government can turn on quickly.

There might be a change to Personal Allowances in the current fiscal year 2010-11 and though this might be politically desirable and paid for by an increase in VAT, this may initially be noted as an aspiration in George Osborne’s first Budget.

The corporation tax changes may be announced but will not be effective until next April.

The capital gains increases would have to wait until next April too. Any extra tax collected would not anyway reach the Government coffers until January 2013, still a long way off, and to a degree this increase will be for political window dressing rather than for the tax take, which will not be all that much in terms of overall annual tax revenue. There might be some scope for planning in realising assets with pregnant gains, though real property is likely to be difficult to shift in the slow economy. Couples might be able to realise small gains on shares within their exemptions and have their spouses buy them back. Investment reasons should really override tax motives though.

All in all, planning will be difficult, and in a few weeks all the above will be overtaken by the Event. Meanwhile, we can play the guessing games and have some fun. I wonder how much will be right?

© Jon Stow 2010

Reblog this post [with Zemanta]

One Response to “The 50 Day Budget and idle speculation”

  1. Jon Stow Consulting – Tax Solutions» Blog Archive » Capital gains and wild exaggerations said:

    Jun 27, 10 at 2:15 pm

    […] regime start? April 2011, April 2010 or 22nd June 2010? I have no idea of course and this is more idle speculation but given that the tax take from CGT is small, there is a degree of political window-dressing, so I […]

Leave a Reply