It has been announced today that the current Chancellor’s third Pre-Budget Report (PBR), will be unveiled on 9 December. Tim Gregory and Clare Cromwell, partners at Saffrery Champness Chartered Accountants, set out eight measures that could help assist the economy and potentially encourage a return to growth.
It has been announced today that the current Chancellor’s third Pre-Budget Report (PBR), will be unveiled on 9 December. PBR 2009 will be the last of its type before next year’s General Election, and will reveal the Government’s latest tax and economic forecasts, departmental spending plans and planned changes to the fiscal framework.
With the country still deep in what is now officially the longest recession since records began, Tim Gregory and Clare Cromwell, partners at Saffery Champness Chartered Accountants, set out eight measures that could help assist the economy and potentially encourage a return to growth:
1. Deferral of National Insurance increases
To start with, Tim proposes suspending these planned increases: “With unemployment at alarming levels, another cost of creating and maintaining jobs is the last thing the workforce needs.”
2. Reverse the restrictions on tax relief for pension contributions
“The Chancellor should not be afraid to think again on tax relief for pension contributions,” says Tim. “With a proposed increase in the top rate of tax to 50% (51.5% for earned income), top earners and entrepreneurs are going to shoulder a large burden of tax increases in the coming years, which will inevitably discourage some from putting 100% into helping to rebuild the economy.”
“The new rules that effectively increase their taxes further just because they wish to save for their retirement are simply unfair. The termination of the ‘quid pro quo’ of full tax relief on money going into a pension in exchange for full taxation of an annuity coming out amounts to double taxation, and should be reversed before it takes full effect.”
Clare Cromwell adds, “For years the government has been encouraging people to build up their pension pots but there is now a decreasing incentive for people to add to their pensions.”
3. Don’t tinker further with CGT!
Tim Gregory says: “The prospect of an increase in Capital Gains Tax is a real fear, given the very large difference between the 18% flat rate and the proposed 50% top rate of income tax. At the extreme, some have spoken of an equalising of the rate, although this seems extremely unlikely to happen, as part of the package in the introduction of a flat rate for CGT was the abolition of any allowance for price increases.”
“For many years, personal taxpayers had the indexation allowance, and then in 1998, taper relief was introduced. The abolition of these was accompanied by a reduction in the top CGT rate from 40% to 18%, similarly recognising that you just cannot put a heavy tax burden on general price increases.”
4. Extend the Stamp Duty holiday
“A Stamp Duty “holiday” for properties less than £175,000 was extended in the 2009 Budget to the end of this year,” says Tim. “It was introduced to help stimulate a housing market that is still barely showing signs of any real recovery.
“A further extension of this holiday, and perhaps including higher value homes, could get this market moving again without any significant loss to the Exchequer.”
5. Remove the restriction on personal allowances
Clare Cromwell says: One of the stranger announcements in the last PBR was the disclosure that the basic personal allowance would be subject to income limits.
“The effect of this restriction is to create a marginal income tax rate of 61.5% for those earning between £100,000 to £113,000. This anomaly should be looked at again.”
6. Reform of Inheritance Tax
Tim says: “All of the main political parties are looking at changes for Inheritance Tax (IHT). It was originally introduced to tax only the particularly wealthy who chose to hold onto their wealth well into their old age. But even with the current state of the property market, there are many people who are pushed into the IHT net purely because of the value of their home.”
Tim proposes that the level above which IHT is charged could be increased substantially, or a possible alternative could be to exempt the main home from IHT altogether.
7. ‘Stick with the programme’ on VAT
“There has been some speculation that the anticipated increase in VAT from January may be revised so that it goes beyond a return to the previous 17.5%, with fears that it may be increased to 19% or even as much as 22%. I hope this does not occur,” Tim says.
“Although there would be obvious extra revenue for the Exchequer, at least initially, it would do nothing to stimulate retail demand. It would very likely reduce retail sales (net of VAT), and would probably reduce demand. Whilst a reduction in demand might curb fears of inflation in the short term, it clearly could not assist in the general economic recovery.”
8. Give companies a break on Corporation Tax
“It is often said that lower taxation promotes growth more effectively and there can be no doubt that now is a time to stimulate enterprise,” Tim concludes.
“A reduction in the rate of Corporation Tax could well help companies to grow whilst not impacting on the total tax take, since more profits would be taxed.”