Lambert Chapman LLP’s Chris Harman reviews the Emergency Budget

George Osborne had the unenviable task of presenting a tough, uncompromising Budget which was also his first Budget.  The Press had paved the way for him by ‘softening us up’.

I understood the intention was for most of the deficit to be clawed back by cost cutting and the minority to be generated from taxation. Cost cutting is laudable but it generates savings over a period. The Government needs money now and to me that meant taxation would be the route to go. 

We were all expecting Capital Gains Tax (CGT) to be increased in order to shrink the gap between taxation on income and taxation on investment gains.  The increase of the rate to 28% for higher rate taxpayers (leaving it at 18% for those whose total taxable income is under £37,400) is not as bad as I was expecting.  

Entrepreneurs can still pay at an effective rate of 10% and their qualifying gains can now be up to £5m.  There has been debate on the merits of a low CGT regime whereby more tax may be collected with a low rate than with a high rate.  The Chancellor has decided an increase to 28% for some will keep a good level of CGT monies coming in without scaring away too many whom may become non-resident to avoid CGT.  

The increase in the level of gain for which Entrepreneurs can qualify is welcomed.  I expect a further increase in the rate of CGT in a later Budget along with a re-introduction of Taper Relief. 

The increase in the standard rate of VAT was also expected.  The standard rate of 20% will apply from 4^th January 2011.  VAT is a quick way to generate tax and the actual tax bill falls on the consumer who can’t reclaim VAT.  I expected a VAT rate increase to be implemented much earlier than 4th January 2011.  A number of European countries have increased their VAT rate and 20% brings us in line with the standard rate for major trading countries such as Germany (19%) and France (19.6%).

The increase, from 6^th April 2011, in Income Tax personal allowances by £1,000 will take many thousands out of the income tax net.  The basic rate band will be reduced so that higher rate taxpayers won’t benefit.

We hoped for and got a reduction in the rates of Corporation Tax.  The main rate of 27% and small profits rate of 20% are to apply from 1^st April 2011. 

Businesses have seen the rates of writing down allowance reduced and may not be too concerned at the reduction from 20% to 18% or from 10% to 8%.  What is likely to upset small business is the huge reduction in the Annual Investment Allowance from £100k down to £25k.

The penalty regime is set to be much harsher with escalating sanctions.  The drive by the government to get all taxpayers to file returns electronically and pay taxes electronically continues.

In a future Budget the Chancellor will be tackling the issues of tax for Non U.K. Domiciles.  I expect this will also include a review of our Residency rules.  I can foresee some significant changes in this very complex area of taxation especially in the light of some recent legal cases.

This Budget was called the Emergency Budget.  It would be good if the next one justifies being called the Panic is over Budget.

Lambert Chapman LLP’s Chris Harman reviews the 2010 Budget

I believe most of us were expecting a Budget to create a favourable view for the Election.  That is what we have had. 

I agree with our Chancellor that global recession has not turned into depression.  I feel that as we aren’t out of the woods it could well do so.   

I am heartened to see that the view is for us to invest as a country to support industries of the future to allow the talent of our Country to flourish.  I only wish I could believe that it will happen.  Our industries have been ignored by the Government and left to decay.  Last year we had the car scrappage scheme and that was considered to be responsible for a 30% increase in sales.  Look around and see where most of the cars that were bought under the car scrappage came from; it wasn’t our car industry.  Now, when our manufacturing industry is struggling to survive, they are offered a doubling of the Annual Investment Allowance to £100,000.  I wonder how many businesses will feel the benefit of this.  I have a suspicion I know where a lot of the machinery and equipment will come from and feel that a lot of it will have to be transported a long way which isn’t going to help us in trying to meet the targets to reduce global emissions.

I see that the borrowings should be £11bn lower than the £167bn that was forecast.  It is good to see a reduction, let’s hope it continues.

I am concerned to see that public sector net debt, which is currently 54% of GDP, is set to rise to 75% of GDP by 2014-15.  It is expected to start to fall in the following year.  I see 75% as horrendous and if we reach that level I hope the fall will be faster than the rise.

There are a number of changes in taxes that will affect business and individuals alike.  Some will benefit and some will lose out.  The details and impacts of the Budget will be analysed over the next few weeks, however, it isn’t this Budget that will determine our future; it will be the one after the Election.

Lambert Chapman LLP’s Chris Harman reviews the Pre Budget Report

I am having difficulty working out where Mr Darling thinks we are and where I think we are.  I had expected a tough PBR with swingeing cuts in public sector spending, cuts in benefits and hard but short and sharp increases in taxes.  I feel the nation would have winced, maybe squealed, but would have probably kept a stiff upper lip, taken the medicine and worked through.  It seems to me that the levels of borrowing are such that a few £billion here or there do not make a difference anymore.  Indeed, we were told that the decisions are being made from a position of strength.  I shudder to think what a position of weakness would be.

I am wondering what affect the windfall tax on bankers’ bonuses will have?  Will it start to drive banks from our shores or will they threaten to move, but stay, because the people with the skills they need are here and the costs and upheaval of moving is not worth it?  I also wonder how the economics of the windfall tax will work because I see it that we, the nation, are shareholders in many banks, so is it us helping to pay a tax that will be paid back to us?

I note the “drive” to encourage people to go “green” with electrically driven cars.  The emission level tax bands are being moved so there will be increased tax charges for many company car drivers.  This is likely to encourage some company car drivers to give up their company car, take a cash salary adjustment and buy their own vehicle.  Maybe, it will be an electrically driven one, in which case I can see that when there are enough such cars, there will be a tax imposed on them because our Government will have worked out that to generate electricity you have to use other sources of fuel. 

I await the Spring Budget to see if it addresses our nation’s problems as I thought that the PBR would.