Well there were a few bombshells in that Budget!
As is typical of the first Budget of a new government, as much bad news was thrown in as the Chancellor dared, hoping that we will all have forgotten by the time the next election comes around.
Looking at the various tax raising and welfare saving measures, it is very difficult to find anyone that wasn’t adversely affected by this Budget and many to the tune of quite significant numbers. It seems to me that the only group of people who may be celebrating are those who stand to inherit relatively high value property from their parents. They could be as much as £140,000 better off when their parents shuffle off this mortal coil, but that is hardly a time to be celebrating.
Entrepreneurs will be hit by the new dividend tax system, buy to let landlords will be losing some of their tax relief on interest , lower paid individuals will be losing some of their tax credits, high earners will be losing some of their pensions tax relief, long-term non-doms could be suffering a significant hike in their tax liabilities and public sector workers are having their future pay-rises capped at below the likely level of inflation for the next four years. That covers a significant proportion of the taxpayers in this country.
Some might say that it is very clever taking all of these steps at this point in the parliament and necessary to bring the deficit under control. As an accountant, I am naturally lured by the appeal of balancing the books, but my fear is that taking so much spending power out of the public’s hands at the same time could stall the economy. If a family is going to be worse off annually by as much as £2,000 then this is bound to focus the mind on being more frugal. The obvious losers could be restaurants, theatres, electrical stores, car dealers and anyone involved in servicing property improvements (plus anyone else involved in discretionary spend).
There is some good news for companies, with the rate of corporation tax continuing to fall – down to 19% from April 2017 and 18% from April 2020. Also, the employment allowance is being increased by £1,000 to £3,000. However, this good news will be more than offset for some by proposed increases to the national minimum wage – cleverly rebranded as the National Living Wage.
The corporation tax rate is obviously designed to appeal to foreign corporations considering where to site their European operations. There seems to be a race to the bottom in this respect at the moment.
There was a small nod to the need to increase productivity within this country in that the annual investment allowance has been set at £200,000 for the foreseeable future from January 2016, when it was due to fall to £25,000. This is designed to give certainty to businesses wishing to invest in new equipment, so should encourage investment in productivity improving assets.
Unpopular as it may be to say this, the reality when it comes to productivity is perhaps that as a nation we are carrying too many passengers within our corporations.
This is maybe caused by a combination of employers being less ruthless when it comes to cutting staff in a recession and employers feeling more constrained by employment regulations, so they do not take the tough decisions. This is good from the perspective of the feel-good factor and minimising welfare costs, but it masks the true position and acts as an inhibitor to wages growth. Investment in new equipment, whilst important, does little to address this issue.
As a collective, we need to invoke the bulldog spirit and get out there fighting to make the UK a world leader in innovation. Intellectual capital is the key to driving our economy and producing wealth.