News Analysis - Time to scrap the Budget.

When chancellor Gordon Brown stands up to deliver his Budget speech next Tuesday he may make no mention of income tax. If he does not – and there is no mention of it in the Finance Bill that follows – we can assume tax-free incomes for the next 12 months. It is, after all, a temporary tax and must be reinstated each year. Chances are, however, we will still be paying the tax in a week’s time. But these days, there is more to the Budget speech than simply announcing the rate of income tax. A lot more. Now there are even suggestions that perhaps it is time to call a halt to the chancellor’s big day and make changes to the tax system as and when they are needed. After all, the notion that the government levies taxes annually is a fiction. Accountancy firms have argued the annual round of Budget and Finance Bill, mixed up as it is with the presentation of party policy, is actually damaging the quality of tax legislation. Genuine investigation of technical measures is also a rarity. English ICA tax faculty technical manager Francesca Lagerberg says the Budget is a ‘historical hangover’. From a tax planning point of view, she adds, it is ‘disastrous’. Last year Ernst & Young highlighted another longstanding public assumption that Budgets are when the government reveals what is going to happen to tax and spending. In bygone days this was indeed the case but the surprise element gets less every year. Additionally, the Pre-Budget Report, the so-called ‘Green Budget’, is now much more thorough than the old Autumn statement. This government also fixes its commitments to public spending every three years. The increasingly complex UK system of taxation is also hindered by technical changes of great sophistication, crammed into a procedure originally designed for then prime pinster William Pitt to impose taxes on the public to bankroll his fight against Napoleon. Today however, taxation has changed beyond anything Mr Pitt would recognise. Tax practitioners are calling for the majority of tax measures to be divorced from the Budget itself and be made a separate technical procedure. They argue such a process would allow more extensive consultation where ministers could call witnesses and take representation over a much longer period, producing better legislation as a result. The English ICA tax faculty wants to see the Finance Bill split into two parts. A short Bill containing the substantive changes to taxation would be backed by a technical Bill containing detailed anti-avoidance rules, changes to the existing rules to make them work effectively and other technical provisions that do not require Budget secrecy. The technical Bill would run to a different timetable and not be constrained by the practical need to have a March Budget and a Finance Bill passed by the end of July. ‘The great advantage of this approach is that the Technical Bill could have a far longer lead time, allowing relevant professional and trade bodies and others, as well as MPs, to consider the provisions fully and make suggestions for improvement,’ Lagerberg said. Whenever the chancellor wanted to improve the tax structure, or needed to raise more revenue, or could afford to return some money to the taxpayer, an occasional Finance Bill could be introduced. So what is standing in the way of such a move? Chantrey Vellacott tax partner Maurice Fitzpatrick believes it would be more sensible to have technical budgets setting out changes, increased consultation on the measures or even a series of mini technical budgets. ‘But there will always be a political demand to have one set piece grand occasion a year to announce the headline changes,’ he adds. A major obstacle, however, is the vanity of whichever chancellor is in office. Past Budgets have proved parliamentary occasions with chancellors taking full advantage of their time in the spotlight. Most have been photographed on the steps of Number 11 Downing Street with wives, pets and ambitious junior ministers. This year there are strong arguments for a quiet Budget with an emphasis on e-business as there is already quite enough in the pipeline to keep individuals and business occupied. John Whiting, tax partner with PricewaterhouseCoopers says: ‘Instead of a formal Budget speech, the Chancellor could instead say something along the lines of the following: ‘I have decided not to make a Budget speech this year. The House will see from previous Budgets under this government that enough changes to the tax system are already due. I am therefore giving the country a year off from our programme of reform to enable everyone to catch up. After all, when you look at what is about to come into effect in April, I think you will agree that this government has been pretty busy already.’ Of course, the chancellor will still go ahead and make his Budget speech – though it does show how many tax changes are already in hand and how much the system is struggling to cope. As Whiting says: ‘Businesses have a lot to deal with from Gordon Brown’s previous Budget speeches. The whole corporate tax self-assessment regime, with its quarterly payments system, was a pretty major change for a start. But these new measures will significantly increase the burden for employers in particular. This is enough to constitute a full Budget speech from the Chancellor – yet there is bound to be more change to come.’ – Once again, Accountancy Age will test the professionals’ powers of prediction. Arthur Andersen, Deloitte & Touche, KPMG and PricewaterhouseCoopers will be hoping to seize the title of top Budget tipster from Ernst & Young, last year’s winner. But they have to contend with ACCA, CIMA and the English ICA as well as the Chartered Institute of Taxation and the Institute of Directors. Find out the winner next week and see this week’s Taking Stock for your own chance to win.