On April 22, the Chancellor of the Exchequer announced The Budget. For those of you not living in the UK or who prefer (wisely) not to know about these things, the role of the Budget is to provide an update on the state of the economy (in a word, dire) and the public finances (worse) and to present new forecasts for each, to set out the government’s economic and fiscal objectives (as far as I can see, to stifle investment by small and medium-size companies), to report on the progress it has made toward achieving its objectives (like what?), and to explain the further steps it is taking to meet them (soak the rich). The record for the longest Budget speech is thought to be held by William Gladstone on April 18 1853, lasting four hours 45 minutes. Fortunately, this year’s took slightly less long.
Much publicity has been given to the announcement in this year’s Budget of an increase in higher rate tax on people who earn more than £150,000 a year in salary. This will rise from 40 per cent to 50 per cent next April and if you also take into account the removal of the tax-free allowance for higher earners and the increase in national insurance contributions, there are certain salary levels where people’s marginal rate of tax will be in excess of 60 per cent. The government says, rightly, that these tax levels will affect a very small proportion of UK taxpayers. But it is almost certain that among them will be people who own businesses, and who we need to invest in these businesses.
I had a complete Budget meltdown last year about the move to a single rate of capital gains tax. Not because my rate, as an entrepreneur, had moved from 10 to 18 per cent, but because there was no longer any differential between someone sitting on their backside punting stocks on the internet and people like me who create jobs and invest in people. The argument went that the differential between the top rate of income tax (then 40 per cent) and the 10 per cent CGT rate was causing all sorts of people (mainly private equity) to dress up income as capital gains. Well, the differential then was 30 per cent. Now, it will be 32 per cent. How does that work?
But now we have a barefaced raid on our cash. It could not be clearer if the chancellor had dressed for his speech in camouflage with a safecracker in one hand and a bag marked “swag” in the other. From April 2010, dividends paid to people earning more than £150,000 will be taxed at 42.5 per cent. And also from that date, higher rate relief for pension contributions will be abolished. If I was a business owner who earned, or was likely to earn, £150,000 a year, what does that say to me? Remove money from your company now as dividends and pension contributions!
If entrepreneurs and business owners do remove money to reduce their likely tax bill, the money won’t be in the companies and therefore available for investment. How does that help us out of this recession? And the worst is that I am not sure that any other government would do any better. The only people who are going to benefit from all this are tax planners. I suppose there is some justice in this, in that they are all bound to earn more than £150,000 a year and so will be paying for our schools and hospitals. All you single girls in the UK, go and find an accountant to marry, preferably one in tax (or recovery). The other people who might benefit, I suppose, are in the drinks industry, notwithstanding the extra few pence on a pint of beer in the Budget. The chancellor of the exchequer, by law, is allowed to drink alcohol to refresh himself during his speech. No other MP is allowed to bring alcohol into the chamber, at any time, not even if the speech does go for four hours and 45 minutes. I, however, will need a drink – or several – to recover from this Budget, and I suspect I may not be alone.
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