STRICTLY, this is not the final Budget which the chancellor will be presenting before the General Election in May 2015. However, in practice, by Budget 2015, an imminent election will reduce the scope for authentic tax reforms as, quite understandably, each coalition party will wish to be seen as having much more distinctive tax agendas.
From an overall perspective, I consider that Budget 2014 has achieved the right balance between continuing to restore the UK’s fiscal position, incentivising key areas of the economy and some radical personal tax reforms.
Focusing firstly upon personal taxation, the increase in the personal allowance to £10,500 in 2015/16 was widely anticipated and the chancellor has not yielded to the calls for an increase in the basic rate income tax band by more than, a frankly derisory, 1% to £31,785 in 2015/16. It is not difficult to predict that more substantial increases in the basic rate band will become an important issue in the election manifestos.
I am confident that the key ministers and shadow ministers are well aware that the UK is increasingly out of step with its competitors on the income tax liabilities faced by lower and middle management and many professionals in both the public and private sectors. In the USA, such individuals would face a 25% rate and even in highly taxed France would face a 30% rate.
There was little in the Budget on either capital gains tax or inheritance tax but these taxes have become contentious areas between the coalition parties, so there were few anticipated material reforms in Budget 2014.
Bold savings reform
We are delighted with the chancellor’s bold relaxations of the rules concerning both ISA investment and the incomes drawn from pension schemes.Indeed, we lobbied HM Treasury for the introduction of some of the key changes.
The withdrawal of the requirement to buy an annuity ought to be welcomed universally. There has been an understandable trend in recent years for individuals to prefer savings in ISAs rather than in SIPPS.
The changes recognise that it should not be for the state to determine how individuals choose how to spend their pension funds on retirement unless they could fall back on the taxpayer for support if they made imprudent decisions. The introduction of the new flat rate, single-tier state pension of (at least) £150 from April 2016 will ensure that most people will have pensions above the level of state support so there is no longer any reason for the state to control how and when individuals wish to draw their accumulated pension savings, and free choice should be preferred.
Down to business
Turning to business taxation, we called for the introduction of a much more generous annual investment allowance and we welcome the doubling of the annual limit to £500,000 until December 2015. We are confident that this measure will accelerate investment by many medium sized businesses with broader advantages to the economy as a whole.
We also supported the call for the abolition of the long haul rates of airline passenger duty and, by doing so, the Government has demonstrated its willingness to act where competing countries (in this case, principally France, Germany and Holland for long haul travel) have more attractive tax regimes.
So far as the anti-avoidance measures are concerned, we consider that these achieve a fair balance between protecting the tax base, reducing the scope for the marketing of abusive schemes (which generally fail in the tax courts anyway) but not wrongly attacking authentic tax planning strategies.
Stephen Herring is head of taxation at the Institute of Directors (IoD)
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