For 35 years I have broadcast, written articles, blogged and generally discussed the effect of fiscal policy in a politically neutral way. I’ve seen it as my job to inform my clients and contacts as to how tax changes will affect them and/or their businesses. I’ve adopted the mantra of Alfred Lord Tennyson that “Ours is not to reason why;…….”
BUT: Maybe it’s the grey hair, maybe it’s because I’m approaching the twilight of my career and can take more risks, or maybe it’s because for once in my life, I’m left dumbfounded by the sheer incredulity of what is currently going on.
Three days after the Mini-Budget (sic), which was actually the most momentous Budget for 50 years, the economic consequences of this administration’s policy are plain for all to see.
- Sterling touches an all-time low against the dollar
- A surge in UK government borrowing costs (as of today the highest since August 2008 – the effective rate of interest on borrowing two-year and five-year periods reached 4.5%
- An effective freeze or certainly a massive pay squeeze for public sector workers
- Interest rates predicted to have to rise very soon to 4.5% or higher (so much for the modest SDLT cut helping first-time home buyers)
- Inflation at 9.9% and expected to rise to 11% despite the intervention on energy prices
I could go on. Interestingly, no other G7 country is cutting taxes whilst dealing with the cost of living.
What is the point in abolishing the 45% rate of tax. Those who want to avoid tax will continue to do so. The 1% of the population who pay the 45% rate will now have hefty tax savings. Why?
The 1% reduction in the basic rate of tax to 19% is welcome, but it won’t kick in until next April and for someone on the average wage it’s hardly going to pay their increased energy bill.
The retention of the 19% corporation tax rate sounds good, but is it actually that helpful? In my view it would have been far better to continue with the rise in rate to 25% but then to support smaller business with a reduction or abolition of business rates.
If this administration wanted to be radical, why not cut a regressive tax like VAT? It’s the highest rate on “normal” items in Europe. Why not significantly reduce the rate or even zero rate/exempt non-luxury items, and raise the rate on expensive cars, luxury jewellery and expensive designer clothes? Now we’re no longer in the EU, we can do what we like with VAT so no hiding behind EU law any longer.
I’m all for the market economy, encouraging enterprise and innovation and supporting long-term growth. But we’re not coming from a position of strength. We’re struggling. Families are struggling. Small businesses are struggling.
But my job is to explain the impact of tax changes, not justify them. I can’t do the latter. But I will continue in the best way I can to support my clients as they struggle in this tough and unpredictable economic climate.
