Everyone’s a winner – but for how long!

John Whiting, PricewaterhouseCoopers

John Whiting, PricewaterhouseCoopers

Some things had already been played with and were almost familiar; but some
surprises lurked at the bottom of the sack.

The centrepiece was the well-trailed cut in VAT from 17.5% to 15%, operating
from next Monday (1 December) until 31 December 2009. Although expensive ­
costing some £12.5bn ­ the impact on individual prices will, inevitably, be
modest. Its importance is in many ways the psychological boost it tries to give
to consumer confidence and spending power.

Meanwhile, traders have a considerable administrative burden. Retailers,
themselves coping with the run-up to Christmas, have a myriad of goods to
reprice; and many Accountancy Age readers will need to be careful with
the VAT rate on their post-1 December billings.

The basic personal allowance increase was more generous than might have been
expected, although it is disappointing that the national insurance threshold
won’t rise to similar levels. Increases in tax credits and child benefits duly

There are some good measures for business.

At last we seem to be making progress on the taxation of foreign profits;
small business will welcome the deferral of the 1% rise in small companies rate;
there are some useful proposals to help businesses in cash flow difficulties
with tax payments; and some modest help with loss relief (but why only £50,000
and why only for one year?); and the heartily disliked income shifting proposals
will be put to one side, though not completely abandoned. Importantly, the
Taxpayers’ Charter will arrive, with a foundation in legislation.

How is it all to be paid for? That’s when the surprises came out of the
Chancellor’s sack. All NIC rates go up by 0.5% from 2010 (£5bn); a new 45% rate
of income tax and personal allowances phased out for incomes above £100,000 (a
combined £2bn). With a further £5bn in efficiency savings and (most importantly)
a return to growth in the economy, the borrowing and general economic figures
begin to look a deal healthier after 2011.

But will it all deliver?

The risk is that the glitter wears off the goodies before they deliver the
dividend the chancellor wants. After all, might not some people question whether
a gift such as a marginal tax rate of some 60% is really what they want?

John Whiting is a tax partner with

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