I am hysterically bad at Budget predictions. In days gone by when such matters were the subject of office sweepstakes (oh the fun we have here in accountancy) the closest I ever came to a win was my prediction that Kenneth Clarke would pre-order 400 Havanas before putting up the duty on cigars. And maybe he did – I guess we’ll never know. Except perhaps we now know that I am of a certain age! So what do we have to look forward to in George Osborne’s box of tricks? I think it’s safe to say that it is unlikely to be a generous giveaway with at least 2 more Budgets to go before a general election.
And beyond that, given my appalling track record for predicting the contents of the red briefcase, I haven’t a clue. I do however have a few suggestions of my own for useful changes the Chancellor could make without costing much if any money that we don’t have.
Top of that list has to be child benefit. And yes I am aware that we are only two months into the new regime but it is already clear to me that the new provisions are hideously and unnecessarily complicated to achieve what is a simple and not necessarily illaudable aim – to ensure that the wealthiest amongst us no longer receive child benefit which they neither need nor appreciate.Would it not just be simpler to make it taxable on recipients? If that means increasing the level so that the poorest are unaffected then so be it. It’ll be self-funding and the operational aspects are identical to how state pensions are currently taxed. And that works just fine. So it would be simple, revenue neutral and achieve the same aim in a more targeted way than the current regime. Unfortunately child benefit is also a political minefield so it is unlikely that any politician will want to walk through that again so soon after coming through unscathed first time round. What else? It is also time for the Chancellor to lance two tax boils that were introduced by the last government to make a show of penalising the rich which in reality have reduced the tax take.
Firstly that means going the full hog and instead of the planned reduction in the additional rate of tax from 50% to 45%, simply returning us to the status quo ante and abolishing the rate completely. Yes politically it’ll look like a tax reduction for the rich but I can assure you that this supposed increase has done more than anything to incentivise those same people not to pay it. I can speak anecdotally and say that my experience is that it brings in less money to the Treasury.
Secondly, abolishing the insane and complex aspects of entrepreneurs relief – the tax relief that ensures that the capital gains tax on business sales is limited to a rate of 10%. It is no accident that we have such a low rate of CGT – in the days when CGT was 40%, people simply didn’t pay it. They left the country before making gains or simply didn’t dispose of the asset at all. The 10% rate has done more to generate tax revenue than any cosmetic tax increase might do. The last government briefly abolished the 10% rate in the form of the old and very popular taper relief (something they introduced themselves in 1998) and then under pressure replaced it with entrepreneurs relief.
The new relief was both less extensive in terms of the assets it included and capped at a lifetime gains figure of £1 million. The current government has increased it 3 times to the current level of £10 million and it is time to remove the cap completely and consider expanding the asset classes closer to the old taper rules. This would appear again to target tax breaks at the wealthy but I am convinced it would result in more money being generated and potentially stimulate certain sectors of the economy (in particular parts of the property market). Previous experience suggests so. So that’s my lot – not exactly predictions since none of this is remotely likely but nevertheless my own personal lobbying of the Chancellor that he won’t see and if he did he would simply ignore.