If you buy a brand new car and discover after one day that it has a 2” scratch in the gleaming new paintwork, it is a disaster. No matter that by far the majority of the bodywork is coated in a perfect shining layer of paint and lacquer, reflecting the sunlight as only a new car can, the only thing you will see is the 2” of exposed metal which overshadows everything else.
And so to the Chancellor’s 2012 Budget.
A reduction in the main corporation tax rate down to 24% with the aim of taking this down to 22% and then, possibly to 20% in the future. Great news for profitable companies and certainly increases UK competitiveness.
An increase in the personal allowance from £8,105 for 2012/13 to £9,205 for 2013/14 taking many low income individuals completely out of the tax system. This is exactly the sort of thing a progressive Chancellor should be looking to do and, credit to Mr Osborne, he has been the one who has done it (albeit possibly with some coercion by his coalition allies).
A reduction in the top level of income tax from 50% to 45%. Yes, I know Ed Milliband won’t like it but frankly this is just common sense. There is no overriding “fairness” argument for a 50% rate and we now discover that it has had at best only a negligible beneficial impact on HMRC’s coffers.
SDLT on £2m properties is to increase to 7%. A General Anti-Avoidance rule to be legislated to prevent the most extreme cases of abuse. Penal charges on those who have avoided SDLT on expensive properties by purchasing them through offshore companies. No arguments here either. I doubt that the anti-avoidance rule will work as intended – but let us at least see some proposals first rather than dismiss the idea out of hand.
But for me the glaring scratch in the paintwork is the lack of joined up thinking.
Take simplification. The age related personal allowance is being withdrawn because the concept of losing £1 of it for every £2 of income over a certain threshold is just too complicated. But in almost the next breath the Chancellor advises us that Child Benefit will not be withdrawn at £50,000, but instead will reduce by 1% for every £100 earned over £50,000. Is that not exactly the same “too complicated” concept again?
Moreover, the Child Benefit will be withdrawn via the income tax system – requiring, presumably, a self assessment return where possibly one is not currently required at all.
The Chancellor then made great play of the fact that the Labour administration had caused a huge £16bn distortion by signalling that an increase in the top rate of tax to 50% was coming. Some taxpayers had (somewhat predictably) taken their money early (at the 40% rate) creating a big tax receipt in the earlier year but leaving a yawning chasm in the next year’s tax receipts.
Should we hazard a guess as to what is about to happen as a result of deferring the decrease from 50% to 45% until April 2013?