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Tax Take

Deviants, like me, get up to some weird stuff in the bedroom. There I was, earlier this week, under the covers with a copy of the latest Budget, when I discovered that its biggest tax-raising policy was a restriction on, in the words of the Office for Budget Responsibility, “the amount of corporate interest payments that affected groups will be allowed to offset against corporation tax liability”. Pretty soon, I had a selection of recent Budgets and Autumn Statements spread out on the sheets, investigating all of their policy costings.

What did I find? That some of the main tax-raising measures of recent years include: the reform of Stamp Duty Land Tax rates for non-residential properties (raising an expected £2.6 billion over the five years from its introduction); a new set of dividend tax rates (£10 billion); a curb of the loss relief available to banks (£3.5 billion); and… ugh, even I couldn’t continue, and I can’t continue now. Tax doesn’t have to be taxing, they say, but these policies certainly are. They are unglamorous and unwelcoming. They will be understood by only the most determined accountants.

Perhaps that’s why we don’t hear much about them once George Osborne sits down from the despatch box, although we certainly feel their effects. The Insurance Premium Tax is a good example. This is technically a tax on insurers, but it is generally passed on to consumers in the form of higher premiums. And the Chancellor sure has been giving insurers a lot to pass on. In last July’s Budget, he raised the standard rate of IPT by 3.5 percentage points, from 6 per cent to 9.5 per cent, which is expected to make around £8 billion for the Exchequer over the next five years. In this year’s Budget, he raised it by a further 0.5 percentage points, for £900 million more. It’s expected that all this will add about £73 to the average family’s annual bills.

Perhaps these sorts of taxes are inevitable six years into a programme of austerity. A Chancellor – and particularly a Chancellor who has positioned himself against using tax hikes to reduce the deficit – has to be increasingly inventive. He already introduced his largest tax policy in his very first Budget, a 2.5 percentage-point increase to VAT, which brought in £54 billion over five years. Now he has to scrabble around for ideas in the less familiar parts of the tax guide.

But perhaps there is something more devious to it. When Osborne announced his VAT rise in 2010 it was utterly knowable: not just front-page news, but also easy for organisations such as the OBR and the Institute for Fiscal Studies to perform their calculations upon. Yet when he hikes IPT, as he has done over the past year, it’s all mud. How much of it will be passed on to consumers? What types of insurance will be affected? What will be the effects on top of effects on top of effects? Even if we could bring ourselves to care, the answers are more difficult to come by.

If this is by design, it would be a horribly ironic one. Osborne has, in many ways, been a force for transparency – certainly compared to his predecessor-but-one, Gordon Brown. Where Brown used to hide anything nasty in the tiny print of massive, unwieldy Budget documents, Osborne keeps it in bold in more readable books. Where Brown used to gerrymander the figures to ensure he met his fiscal targets, Osborne set up the OBR to act as an honest arbiter. Where Brown used to capture millions more people in higher income tax brackets by keeping thresholds where they were, Osborne has at least moved to establish friendlier boundaries.

But the current Chancellor may still have found another form of stealth tax: the tax that’s so dull, so unfathomable, that we don’t really notice it. And it’s raising him many £billions.

Of course, raising £billions isn’t a bad thing in itself, particularly when there’s a £70 billion deficit to be conquered. The curious thing is that all of these tax-raising measures appear simply to be covering the costs of tax-cutting measures elsewhere. All of the tax policies announced in the latest Budget amounted to a £3.5 billion loss for the Exchequer over the next five years. Osborne is forgoing £8.4 billion with one policy alone: raising the Personal Allowance to £11,500 in April 2017. These are the above-board generosities that the Chancellor pays for with his stealth taxes.

In some ways, this is how it has always been. Chancellor’s giveth and they taketh away. They rebalance the public finances as they see fit. The question is: do we see fit, too? When so much is so complex and so dull, it’s a bother to tell. Yet, if we really want to follow the money, it has to be followed all the way to – again, in the words of the OBR – “the amount of corporate interest payments that affected groups will be allowed to offset against corporation tax liability.” Hop to it.

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