Lord Flight was Shadow Chief Secretary to the Treasury from 2001-2004. He is now chairman of Flight & Partners Recovery Fund.
Whether by judgement or good luck, or a mixture of the two, the Chancellor is to be congratulated for his highly successful management of the economy. Fiscally, the annual deficit has more than halved as a percentage of GNP; an easy money policy and the continuation of a substantial Keynesian budget deficit have served to get the economy growing again. As Greece has learnt to its cost, you cannot solve a deficit problem without economic growth and the recovery (rather than contraction) of tax revenues. Going forward, the UK macro plans for both eliminating the budget deficit and for the economy as a whole look both reasonable and achievable.
The Welfare Reforms are also sensible and have national support where Labour will damage their support if they oppose them.
Many have criticised the increased minimum wage – now termed the National Living Wage (NLW). I do not like Governments interfering in pay, especially where growing regional differences in the cost of living should allow pay rates to be determined locally. But where Government (the taxpayer) continues to subsidise pay – outdoor relief as it used to be known – an adequate minimum wage cannot be avoided, in order to stop employers constraining pay deliberately and optimising the government subsidy. The cost of in-work tax credits has increased from around £8 billion to over £30 billion per annum over the last decade.
My main criticisms of the Budget are the several stealth taxes it includes, the large increase in taxation on the middle classes and that in many areas it complicates the tax regime yet further. It is a Budget of which Gordon Brown would have been proud!
I welcome the reduction in Corporation Tax to 18 per cent, but this is offset by tinkering with the company taxation regime, especially for banks with an additional 8 per cent tax on UK profits. No one really understands dividend tax credits but savers will discover the changes will cost £7 billion each year. The increase in the Insurance Premium Tax will cost the better off £1.5 billion annually. The increase in the floor for Inheritance Tax for the majority is welcome, but it will not apply for estates worth more than £2.35 million – why not simply increase the floor for everyone to £1 million?
Pensions are already too complicated. The life time allowance should be removed and I suggest the tax credit on contributions should be 20 per cent for everyone. But for those earning above £150,000, their tax benefited contributions will be limited to £10,000 per annum. The changes affecting Enterprise Investment Scheme and Venture Capital Trust investments are a nightmare and will have the effect of reducing, substantially, equity risk capital for SMEs. Admittedly, the new regime has been the result of EU bullying, but the Chancellor should have dealt with the EU Commission and put his foot down here.
Charging renewable companies the Climate Change Levy is a contradiction of Government energy policy, which is still seeking to encourage Renewable Energy investment. Challenger banks, which the Government is seeking to promote, are now to be hit with the Government’s new 8 per cent additional Corporation Tax.
The substantial cut in tax relief on borrowings for Buy to Let landlords will affect the supply of rented properties and is, at least in spirit, retrospective. Many have invested in Buy to Let as a more attractive alternative to Pension Schemes, on the basis of the tax rules at the time of their investment not being changed retrospectively – i.e. the tax changes should only apply to new Buy to Let investments.
Overall, this Budget will extract approximately £25 billion per annum from the already over-taxed middle classes, concealed in a raft of new stealth taxes – of most of which we are not yet aware.
The most worrying aspect of the Budget is that the Chancellor does not appear to recognise that Britain’s economic priority should now be to increase the Savings Rate; to help increase investment and improve productivity; and to stem the flow of valuable British assets being sold to international buyers in order to finance our huge £700 billion, cumulative, current account deficit.
Clearly, the Chancellor’s objective was political, to get himself the reputation of “supporting the working man”. I doubt he will succeed in this, but his Budget measures will alienate a lot of Conservative supporters as the raft of stealth taxes applying to them, hidden in the Budget, start to hit home. Higher ‘means tested’ stealth tax rates for the better off seem to be the Chancellor’s new underlying principle (copying Gordon Brown) in the hope that those effected will not blame the Government as and when they become aware of them.
The most disgraceful proposal of all is to give HMRC the power to raid individuals’ bank accounts. It is inevitable that this power will be both misused and used wrongly. Like citizens, the Government should rely on the ultimate power of the courts to recover monies owing. This is the sort of totalitarian measure we do not want or need in this country and, historically, have fought against.