So, another Budget, more paper waving, cheering and jeering, but most of the announcements had already been leaked by the Government in the week before, so what were they all getting so worked up about?
Growth forecasts were slightly increased to 0.8% for the current year, with predictions of 2.0% and 2.7% in 2013 and 2014 respectively. Borrowing is £11 billion lower than was forecast last November, which will be used to repay debt, therefore reducing interest costs.
Announcements were made about reducing welfare costs by £10 billion by the year 2016, providing assistance to double exports to £1 trillion, overhauling the planning regulations to make them simpler and providing extra funding to help construction firms finance new houses.
Tax avoidance has been high on the Government’s agenda for a while now and the Chancellor called it “morally repugnant” in his speech today. With that in mind, consultation will take place on a general anti avoidance rule aimed at putting a stop to aggressive and contrived tax planning arrangements. The aim is to introduce this as legislation in the Finance Act 2013.
One of the most publicised areas of tax avoidance recently has been in respect of Stamp Duty Land Tax (SDLT). The Chancellor, therefore, attacked this with some vigour, introducing a new 7% rate for residential properties above £2m, imposing a super charge of 15% on residential properties over £2m being purchased in a “corporate envelope” and blocking a number of specific SDLT avoidance schemes. Furthermore, profits made on the disposal of offshore companies holding residential properties will be subject to capital gains tax from 2013. Consultation will also begin on an annual charge for residential properties already contained within a corporate.
Companies came in for some good news, with the main rate of corporation tax to be reduced by 2%, rather than the anticipated 1%, so that the rate applying from 1 April 2012 will be 24%, with the intention to lower it to 22% by 2014. The indication from the Chancellor was that he would like to align this rate with the current small companies rate of 20%.
Small companies may also benefit by reducing their administrative costs, with the proposal put forward that companies with turnover less than £77,000 will be able to prepare accounts on a cash basis.
The proposed erosion of Child Benefit was revised, so that it is tapered down once one member of the household has income of more than £50,000, with it disappearing completely once income exceeds £60,000. It is understood the mechanics of this will be that Child Benefit will still be received, but will then be repaid through PAYE or self assessment from the parent earning in excess of the thresholds.
This seems contrary to independent taxation and will be seen by many to be unfair. Households with two working parents earning £50,000 each, ie a household income of £100,000 will continue to receive Child Benefit, whereas households with only one parent earning £60,000 will lose their Child Benefit completely. This needs to be reconsidered before its implementation in January 2013.
Better news came in the form of increased personal allowances for income tax. These are to be £8,105 from April 2012, increasing to £9,205 in April 2013. The aim is to remove a further two million people from the tax net. However, all things come at a price, with the additional personal allowances available for individuals over 65 being frozen and effectively tapered away over time. Due to there being no inflationary increases, it is anticipated this will generate an additional £3.29 billion in tax revenues over the next five years.
The Chancellor then spent some time debating the merits of the 50% tax rate for incomes above £150,000. Unsurprisingly, HM Revenue & Customs have informed the Treasury that tax receipts are down by £3.6 billion, predominantly due to the fact that some £16 billion of income was ‘brought forward’ and self assessed in the year before the introduction of the 50% tax rate. So, he announced the top rate would be 45% from April 2013.
Bearing in mind the Chancellor’s comment about changing income reporting practices to avoid the 50% tax rate, this seems a bizarre decision. Those who can alter the timing of their income will do precisely that for the next tax year, reducing their income when the 50% rate is in place, before then taking a huge amount of income on or after 6 April 2013 when the 50% rate is gone! The deferral of the reduction just seems to exacerbate the problem already experienced.
Despite this reduction, the Chancellor estimates that, even after this reduction, the tax revenues generated from his cuts for the wealthiest will generate five times more than is currently the case.
So, despite the advance leaking of details to the press, there were still a few surprises in the Chancellor’s speech and, of course, lots of detail he didn’t mention that will take some time to sift through. It was nice not to have any bad news about growth forecasts or borrowing and positive that there are tax reductions coming through. With more cash in the back pocket, hopefully more will be spent and the country will grow as a result. In the week after the Cheltenham Festival, it is certainly a gamble, let’s hope it pays off!