Break with the past? So start making sense

The new coalition of Liberal Democrats and Conservatives present themselves
as a break from the old politics. They should have no doubts that the commitment
will come back to haunt them. It’s already doing so in some policy areas, but
the area to watch in the coming weeks will be the emergency Budget and tax

It is sad to say that the signs are not good. There are six major tax issues
in the coalition manifesto, but the two biggest – capital gains tax and national
insurance contributions – will leave most tax professionals and accountants
inside companies scratching their heads with confusion. In some ways our concern
should not be too exaggerated – the coming Budget should clear things up. But
the manifesto, as an exercise in clarity, leaves much to be desired. It smacks
of being what it was – a rush job completed as the two parties scrambled to seal
a deal.

The problem is that it provides little comfort. It hints at rises in the
capital gains tax rate but leaves the rate undisclosed and key definitions
unexplained. This sparked much discussion about whether people should sell their
assets as quickly as possible. A further press conference this week sparked more
speculation as it became clear that the threshold for the tax would drop even as
the headline rate rose. And yet, despite all this concern and all this
confusion, we are still no closer to knowing exactly what the new government
will do.

Manifesto pledges on national insurance also leave room for uncertainty. It
now appears that the rise in thresholds for employee contributions proposed by
the Tories will be abandoned, but they will go ahead for employers. This is to
stop Labour’s jobs tax. Though, make no mistake, as things stand, employers will
still face a rise in national insurance. There is only one way to “stop” it –
reverse the impending rise introduced by Labour. But there’s no commitment to
that in the coalition manifesto. There is still much to explain.

The profession and the public know, and will probably accept, that changes to
the tax regime have to happen. But the first thing they want is clarity.

Opaque language, clearly designed for political campaigning rather than
precision, breeds uncertainty and that breeds disquiet about the general
direction of the tax system and the management of the Treasury. The practice of
so-called professional politics is far from being harmonious with the needs of
taxpayers and advisers.

That’s part of the crisis that beset the last government. The sense that the
tax system was out of control and the gnawing doubts about what would happen in
the future ate away at the chancellor’s reputation. The government will have to
grasp these issues and show it really has broken with the past.

Further reading:

Advisers warn of taxing times
ahead with Lib-Con coalition

Osborne warned over hasty tax

Related reading

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