'A lot of tweaking, with little effect...'
28 Mar 08
A combination of factors ensured that last month's Budget was received with more of a whimper than any bang
A combination of factors ensured that last month’s Budget was received with more of a whimper than any bang.
For a start, most of the headline changes had already come out in October’s Pre-Budget Report, or were extensively discussed in the weeks running up to Chancellor Darling’s maiden Budget.
His buffeting from the breakdown of Northern Rock, and pressure from the economic uncertainty caused by the unfolding credit crisis, also ensured the Chancellor would seize on this high-profile opportunity to steady the ship, rather than risk rocking it any further.
With the threat that any tax rises would potentially damage growth, but the pressure of a widening deficit preventing any give-away, the Budget was stuck in neutral. Increased spending, mostly on tackling child poverty, will be offset by anti-avoidance measures, a hike in alcohol and fuel duties, and a punitive tax on high-polluting cars.
The Chancellor downgraded this year’s growth forecast, to 2 per cent, but predicted it would pick up again in 2009. He acknowledged that slower growth means a lower tax take and higher borrowing in the short term, but maintained that the golden rule – that the Government would only borrow to invest and not to bankroll current spending – would still be met over the cycle.
But underlying the Budget buzzword of stability, there were some points worth revisiting – many of them buried in the separate Budget notes published by HMRC.
Derek Allen, director of taxation at ICAS, said: “This Budget was about plucking the goose with the minimum of hissing.
“Clarity is becoming essential. There was virtually nothing in the Chancellor’s speech about taxation, but there were 107 press releases from HMRC in relation to the Budget. If the theatre of the Budget is to have any meaning, people should be able to take away from it what they need to know.
“A lot of tweaking in the budget will have very little effect on many people, but others whom it does affect may not even realise it.
“The ability of ordinary people to understand the tax system is being eroded, and this Budget does nothing to help. People are genuinely too confused about what the Budget means to them any more – for example, the abolition of the 10 per cent starting rate of tax, which dates back to Gordon Brown’s last Budget – people have lost sight of how that is going to affect them.
“For businesses, it was very mixed. There’s lots of tinkering for really relatively small sums of money.”
Allen conceded: “The Chancellor has done the right thing by deferring ill-thought-out income-shifting legislation which would badly affect family-run businesses. Hopefully this will give him time to realise this legislation should be scrapped altogether. His decision to persist with changes to taxing capital gains and ‘non-doms’ may come back to haunt him.
“In the present economic climate, any change to affect negatively the competitiveness of the UK ’s tax regime – even if it is just a perception – is unwelcome.”