Such repetition is now apparent in the government’s record of tax changes: a catalogue of hastily-announced proposals which either subsequently require amending, or else lead to a tidal wave of unforeseen consequences which themselves require further tax reform measures.
The latest example of this is the press release published on 22 December 1997 repealing the concession for certain professionals to be taxed on a cash basis. The backlash against this has been enormous, particularly from barristers. It is almost certain the government will be forced to amend these arrangements.
Prior to that were the government’s proposals to abolish PEPs and TESSAs and introduce ISAs with their #50,000 lifetime limit. Not only has this created huge opposition and a weighty post bag, it is becoming increasingly clear that ISAs are not an efficient vehicle for basic-rate taxpayers, the very people they have been aimed at.
Most savers will not expect their investments to generate capital gains in excess of the annual exemption and thus the only real advantage for holding equities through an ISA is the 10% tax credit, available for five years. Consequently, there are almost certainly going to be changes to these measures in the Budget.
The third example is the decision to abolish the repayment of dividend tax credits to non-taxpayers. The government had thought sufficiently far ahead to announce simultaneously the abolition of foreign income dividends but insufficiently to consider the impact of the abolition of FIDs itself would have.
With no solution in sight the government had to resort to the wholesale abolition of ACT and its replacement with quarterly corporation tax payments. Now we are having to deal with these ill-thought-through measures, in particular the determination of the profits on which the payments will be based and the cashflow problems these measures are generating.
A little more thought and a little more consultation prior to proposals being published would benefit this government enormously.
Nick Gibb is Conservative MP for Bognor Regis.
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