Goodness me – that was some performance! With economic gloom threatening on the horizon and UK growth rates being downgraded, the Chancellor managed to pull every positive out of the hat that he possibly could. And that performance was mirrored in the depth of content from a tax point of view and some genuinely unexpected measures.
Don’t get me wrong – I am not knocking the Chancellor’s performance because I am always a firm advocate of positivity breeding positivity, but I suspect the huge raft of tax changes is designed to take everyone’s attention away from the bad news on budget deficit.
Of course, it’s always nice to have good news and I don’t see how the reduction in capital gains tax rates (from 28% to 20% and from 18% to 10%) can be seen as anything other than good news. You may disagree if you own a second home or buy to let residential property, but the owners of all other capital assets can benefit from a more generous tax regime.
The capital gains tax changes were, in my opinion, the Chancellor’s most significant rabbit plucked from the red box, but the press will be having a field day with the sugar levy.
Some medical professionals had been pushing for this in recent times, but I don’t think anyone expected the Chancellor to take action. As a parent (responsible one of course!), I applaud this and I hope it sends shock waves throughout the food and drinks industry.
Back to the budget deficit, we are still struggling to balance the books and the downgrade in growth expectations does us no favours in that respect.
In my opinion, we must continue down the path of getting to a position where the government spends no more than it receives.
The national debt is at virtually unmanageable levels, so much so that the interest cost of servicing that debt is expected to be £39bn in 2016/17. If the financial markets became spooked by our ability to continue servicing that debt then the interest rate would suddenly be hiked and that £39bn could very quickly turn into £78bn or even more.
How would we pay for that I wonder? Increase taxes? Sure, but that decreases consumption and we meet ourselves coming back. Ok, so we decrease spending on health, education or defence or perhaps further cuts in the welfare budget. I don’t think any of those are going to be too popular.
So how is the budget deficit going to be closed? Well, you’re going to like this, not a lot, but it seems that the spotlight is very much on multi-national companies, making sure they pay their fair share of tax in the UK. There was a raft of changes announced that will raise tax revenues from large companies and many will be pleased with that I’m sure, particularly following the Google, Starbucks, Amazon press coverage of recent times.
We just have to be careful that we don’t make ourselves an unattractive country from an inward investment point of view and there was a clear nod to that in the announcement of a reduction of the headline rate of corporation tax to 17% from April 2020.
As many commentators are saying, there isn’t much wriggle room left, but the Chancellor seems to be steering the country across a tightrope as well as he can at the moment. Let’s hope we don’t have a collective wobble!