Eyes Down for the General Election
It would appear as though the Government have more than one eye on next year’s General Election, based on the announcements made today by Alistair Darling in his Pre Budget Report (PBR).
The PBR, the Chancellor announced, was tax neutral, but is that enough with the UK’s economy being the only one in the G20 still officially in recession? With net public borrowing at a higher than anticipated £178bn (original prediction £175bn) and expectations for that figure to be £176bn for 2010/11, there is still a long way to go to get the country’s books back into balance.
So what announcements were made? Well, the banks were hit, as expected, with a 50% charge, payable by the banks, on any bonuses over £25,000. That additional 50% will not be tax deductible for the banks in arriving at their taxable profits. This measure applies up to 5 April 2010, when it is hoped the new Financial Services Act will be in place, which will restrict banker’s bonuses generally.
National Insurance (the tax that is never called a tax) is to increase, not by the 0.5% as announced in the 2008 PBR, but by 1%. This applies across the board, for employees, employers and the self employed. However, measure will be taken to raise the threshold at which individuals begin to pay, to ensure that those earning less than £20,000 per annum, will not be affected.
The new pension tax rules which restrict tax relief, previously implemented as applying only to those with income above £150,000, are now to be extended to those earning over £130,000, whereby those earning above that level will have employer pension contributions added to their income to see if they breach the £150,000 limit.
VAT, as expected, is to return to 17.5% on 1 January 2010. What was perhaps more surprising was that no further announcements were made as to future rises (is that the first of the eyes on the General Election?)
The Stamp Duty Land Tax holiday, that applied to properties costing between £125,000 and £175,000 is also to go from 1 January 2010.
Rates and allowances are to be frozen for 2010/11, including the inheritance tax threshold of £325,000.
All of the above amount to bad news. So, in a tax neutral PBR, there must be some good news.
The Time to Pay arrangement, that has so far benefitted 160,000 individuals or businesses, is to be extended for as long as it is needed. Whilst this is encouraging, the ability to obtain a Time to Pay arrangement with HM Revenue and Customs is becoming increasingly difficult, so time will tell as to whether that stance is relaxed a little.
The small company rate for corporation tax was to increase to 22% from 1 April 2010, but this has been deferred again, which is clearly good news for small companies.
A new, low, corporation tax rate of 10% is to be introduced for companies with income derived from UK patents, to encourage innovation. Sectors specifically mentioned in the Chancellor’s speech included Pharmaceutical and Biotechnology companies. Unfortunately, this new rate is not intended to apply until 2013/14.
To encourage the use of electric vehicles, any company cars that are electric will have a 0% benefit in kind charge for five years from 6 April 2010, whilst electric vans will be eligible for 100% first year allowances.
Pensioners can look forward to a 2.5% rise in state pension, which, against a fall in the Retail Prices Index, represents a real increase in their net income.
And for all you bingo players, the duty is to be reduced from 22% to 20%!
There were a number of other areas that were predicted to be affected, most notably capital gains tax which, at 18% for the majority, represents an incredibly low rate against a backdrop of 50% income tax from 6 April 2010. Furthermore, Employee Benefit Trusts (EBTs) and Employer Financed Retirement Benefit Schemes (EFRBS) were expected to come under attack.
So why not tackle these areas, or implement a “super super tax rate” for those earning above £500,000 or £1m? With the General Election less than seven months away, one would suspect that the Chancellor wanted to steer away from too much bad news. What effect that will have on the UK economy in the short term, we will have to wait and see.