If the row between the Treasury and the DWP continues then George Osborne might be looking for another job. And one important aspect of his Budget this year marks him out as the sort of person that we employ – those who delve into the detail sufficiently to get solutions that work.
Reading the detail of the Budget I find many tax reforms that make sense, some of which I have suggested on these pages and in open forums such as at Reform events:
- Lifetime ISAs, including loss of bonus on withdrawal, are something I suggested before the last election and strike a balance between short- and long-term saving.
- Withholding taxes on royalties were another suggestion that received a nod of approval from head of tax at one of the Big 4. They are a small but significant move to reduce leakage of taxes by mobile multi-national companies. The days when only factories determined where wealth is created are gone, and the tax regime that worked then is inappropriate to companies with intangible intellectual property as their main asset.
- Reducing business rates; smoothing the rate of stamp duty on commercial property; and creating a mechanism to enforce avoidance of VAT by overseas on-line sellers all ensure a level playing field.
- Allowing landlords to deduct actual wear and tear; and peer-to-peer lenders to set losses against profits in their income tax align the tax law with the commercial world and reduce the time and money required to account for the differences.
- A sugar tax that acknowledges changes being made by producers and has two levels to maintain consumer choice also looks like a sensible use of tax policy to improve health.
But the other attribute that we look for in our employees is an ability to see the big picture too. The smattering of economics that I know tells me that £1 in the hands of a consumer is more valuable than £1 in the hands of government. So tax reductions can increase GDP and thereby increase tax payments. Finding numbers that work twice like this – reducing debt AND reducing the ratio of our national debt to GDP – is something that FDs can get quite excited about (and so should you!). But some of the reforms failed to do that, the most notable being reductions in CGT, which are unlikely to feed into consumption, and in personal independence payments which have the opposite effect. I would have preferred to see an export tax credit system similar to the R&D tax credits to stimulate exports by SMEs. I did mention it, so maybe before 2020 it will get through?
After all it looks like we need more growth and/or tax by then to fill the £55bn black hole. As it’s 2.5% of GDP, which is one good year of growth and 8% of government revenues, it’s more than the immaterial amount that is sometimes colloquially called “sweeties”.