LAST month saw Mr Osborne’s eighth Budget as Chancellor. It was pretty much like all other ones – the Government on a debt-fuelled spending binge that it is unable or unwilling to control, ultimately to be paid for by higher taxes.
Despite all the rhetoric about “austerity’ and “the cuts’ the plain fact is that since 2010 the Coalition and then the Conservative Government have spent more each year than the previous year. Hardly a cut! Seemingly unable to actually reduce expenditure, they’ve had to rely on yet more borrowing and tax rises to pay for it.
By the end of this Parliament in 2020, the Government’s borrowing will be a whopping £1,500 billion. Mr Osborne hopes that 2019/20 will be a surplus of £10 billion, but in the context of the colossal debts, it is small change.
Why is this important?
Because it sets the tax landscape for years to come. We are in a permanent high tax environment unless the Government of the day can actually cut its spending.
So, what were Mr Osborne’s tax targets in the 2016 Budget?
Well the good news is that at last he is tackling multinationals. A series of new rules will see their ability to avoid UK taxes curtailed.
The other main targets are tax avoidance and evasion, where he hopes to raise a further £12 billion next year. The trouble with this is that, potentially, many common structures and arrangements within owner managed businesses are likely to fall under increasing scrutiny.
Was there any good news?
Well yes there was, especially for the smaller businesses.
New measures for small businesses include:
* Reform of business rates and an extension of business rate relief
* The abolition of Class 2 NIC in 2018
* Corporation rate reduced to 17 per cent in 2020
* The reform of stamp duty on commercial buildings
* A new £1,000 property and trading income relief
On the personal tax front there was also some good news:
* Personal allowances raised to £11,500 in 2017
* 40 per cent tax kicks in at £45,000 in 2017
* Top rate of CGT now 20 per cent
* Basic rate of CGT only 10 per cent
* Extension of Entrepreneurs’ Relief to cover long-term investors in unquoted businesses from now on
One of the most interesting moves was around ISAs. For 2017, the annual ISA investment limit has been raised to £20,000. More interestingly, is the creation of a new Lifetime ISA for those under 40 years of age. Up to £4,000 a year can be invested with the Government putting a contribution of 25 per cent.
The Lifetime ISA signals an important move by the Government away from just pensions as a means of saving for retirement. The Government have been looking at ways to stop giving 40 per cent tax relief on pension contributions and only getting 20 per cent tax on any pensions paid out. This is an innovative way to move away from the old inflexible pensions model and expect more reform and innovation in this area in future Budgets.