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<b>Opinion:</b> The AccountingWEB alternative budget

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24th Mar 2006
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Mr Speaker.

The British economy has enormous potential. In this budget I shall define measures to release that potential, but also to tackle the looming problems caused by changes in society. My aim is to to make Britain an easier place in which to live and work. I will define measures which encourage business, release disposable income, ensure access to affordable housing, and properly approach our responsibilities as a society. At the same time, I will put forward proposals to limit mounting personal debt, and ensure a sustainable future for all.

I will endeavour to be very clear about the changes I intend to make in taxation in the coming year, so that businesses and others affected will be able to see at a glance how they will fare for the next 12 months.

My first comments relate to our economic position in the UK. I am happy to report that the economic forecasts I made twelve months ago have proved broadly correct and that I do not need to make any significant changes to my five-year forecast. For the detail, those of you who are interested can study Chapter 1 of the Red Book which includes details of my current forecasts for growth and inflation, and early results for the last 12 months displayed against what we expected to happen.

So I turn now to taxes, and changes that I intend to make for the coming year.

For businesses, I intend to index the company threshold for corporation tax in line with price rises since the last time they were increased. This would bring the upper limit for the small company rate of corporation tax to £400,000 and the point at which companies pay the full 30% rate of corporation tax to £2 million. This would redress the effects of inflation, and although there is of course a cost element, the change will also take a significant number of growing companies out of the scope of the rather complex payment by instalment regime, under which larger companies must pay their corporation tax in-year. Within that regime, I shall make changes to ensure that companies moving into the regime have a period of time to adjust to new payment patterns without it causing undue hardship to growing companies.

My officials and I have been considering the responses to the Small Business Tax consultation document, and our own views about businesses which are structured to achieve the lowest possible tax burden. We now believe that the time has come for a unified small business tax, which will apply to all businesses with profits of less than £100,000 before tax. The same tax structure will apply whatever the nature of the entity through which profits are earned, so the tax will unify the treatment of business profits, and indeed their extraction from the business by the proprietors for many businesses. I shall not provide details of our proposals in detail here, but we shall be consulting with businesses and other interested parties to develop practical plans for implementation, which will be based in a new simple piece of legislation, designed solely for this purpose. The aims of the legislative process in this connection are to provide clear and unambiguous legislation, which has been properly thought through and will stand the test of time. Taxpayers who are currently taxed under income tax rules on the profits of their business will in future only be liable to income tax on other sources of income.

While on the subject of simplification, we have now decided to 'grasp the nettle' of corporation tax simplification and modernisation, and will bring forward the 'single source' basis for company tax computations. Separate sources of income will no longer be relevant for company tax computations, and the thorny issue of brought forward losses will be resolved by simply splitting the single profit each year between 'main business' and 'other activities', allowing loss relief against the two pools of income. All new losses will be relieved against the total profit pool and it is hoped that distinctions needed to deal with brought forward losses will come to an end soon. Once again, all new legislation will be written which will be specifically designed to limit avoidance opportunities, and it is hoped, indeed exclude the behaviour we have witnessed over the last five years.

The capital allowance system will be retained for the present, but I shall no longer provide capital allowances on any cars emitting more than 250 g/km of carbon dioxide. This limit will be reviewed annually, and new and more testing limits set as appropriate, to exclude new cars from allowances. Existing cars with higher emissions will remain within capital allowances.

Now I shall deal with personal tax changes.

It does occur to me that the system of tax credits and personal tax is a complex and costly one, and although my original plans have social merit, they seem to have got out of hand. I therefore intend to restructure income tax significantly to provide incentives for those in work, to help families with children and to restrict the help that the tax system gives to the wealthy, who can cope without our help.

I therefore propose to raise the personal allowance to £10,000, with a further personal allowance of £2,500 for each child in the household aged under 18. Because this will raise many of the poorer households out of the tax net, I can then use a single rate of income tax to combine tax and what were called NIC's up to a higher rate threshold. There will then be a higher rate of tax on the remaining income, which will mitigate the effect of increasing the tax threshold, meaning that those on earnings significantly above average will pay the same amount of tax and NIC's under my new plans as they do now. As a consequence, National Insurance Contributions are today abolished, but the revenue will be raised through the income tax changes I have made. The benefits to employers of saving the employer contribution will, I hope, generate additional jobs.

Tax Credits will be abolished, and I shall deal with those unable to work through a new benefits system, which will be carefully targeted to ensure that all have a decent living standard.

I hope through these measures to make very significant savings in staffing within Her Majesty's Revenue and Customs, and to reduce burdens on the taxpaying public at a stroke.

Capital Taxes are me next area of reform. There are significant changes that I could make to the detail of Capital Taxes, but I consider that the time is not now right for wholesale reform. I don't want to be accused of biting off more than I can chew, and I have already set a big agenda for change. My proposals in this are therefore simple. First that the Capital Gains Tax exemption on private residence be extended to Inheritance tax and Stamp Duty Land Tax, but will be restricted to ensure that only one property can ever qualify for exemption at any one time. This will be a costly measure in IHT terms, so I shall pay for it by reducing the rate of Business Property Relief back to 50% as it was some years ago. Businesses will be given time to pay the resulting tax over 10 years interest free. The inheritance tax threshold for other assets will accordingly reduce to £100,000. Capital Gains Tax will continue to attract tax at income tax rates, using the new rates I have proposed above with an annual exemption of £10,000 per taxpayer.

I do not presently intend to make any changes in VAT, subject to those needed to stamp out Missing Trader Fraud. I have now discovered a solution to this, which shall remain secret for the time being, but I can guarantee the taxpaying public, that no more of your money will be lost to these criminals.With regard to social provision, I have made some outline proposals for families and individuals with very limited income. I shall now turn to an important sector of our community ' provision for the elderly, who have completed their working lives.

The abolition of National Insurance Contributions and the replacement of this revenue stream by amended income tax rates means that the basis of provision of the state pension must change. I propose a universal state pension for all of those who have been in any kind of paid work (including those earning below the new tax thresholds) for at least 10 years of their working lives. This will allow those with caring responsibilities at some time in their lives to earn the right to a full state pension. I shall abolish the pensioners minimum income guarantee and replace it with a non means tested state pension for all, at a level which will provide a basic standard of living for all pensioners. This rate will rise in line with wage inflation each year. In addition, my new pension changes implemented from this April, together with increasing the retirement age to 70 for all by 2015 should smooth the cost of this measure, and ensure that those who wish to save for a prosperous retirement are encouraged to do so, and assisted by the state with tax relief.

Care for those elderly citizens who are no longer able to live independently in their own homes is my next priority. I shall provide suitable care of a high standard in state regulated accommodation with provision for couples so that no couple will be separated by their care needs unless they choose. This will be funded as follows. My new tax proposals devote significant taxpayer support to housing, and the new exemptions mean that householders will have the support of the state through tax exemptions. At the end of their lives, when they no longer require their home to live in, it is only fair that the state benefits from the help it has provided in earlier life. Residents' homes will therefore be taken in full to provide for their lifetime care, irrespective of care needs. 25% of the value of the home will be paid to the resident to provide them with a 'nest egg', and the remaining value will pass into a state fund which will provide residential care for all, irrespective of contribution. Those with assets other than homes have not had the tax relief that home owners have, so I see no need at present to collect additional funds from them. However, this aspect will be kept under review.

The wider provision of social housing is also a key aspect of providing an adequate standard of living for all. I know that we need to provide additional social housing, and in particular housing for the increasing number of single households we are projected to have in the future. However, many of these single households will be occupied by the elderly, so it is possible that the additional housing needs can be met by the provision of social housing for those elderly individuals who do not need care, but are now living alone. Those with their own homes can, of course, trade down, but I shall be looking urgently at funding additional housing, possibly by an additional levy on the profits of housebuilding companies, who of course will benefit from the additional business.

Finally, I turn to healthcare provision generally and the funding of our health service. I propose to make a more direct link between unhealthy behaviour and the cost of supporting this through healthcare. I shall therefore review the range of foods which benefit from zero rated VAT, and ask the health profession to draw up a list of criteria of unhealthy foods, including criteria for easily measuring processed meals. I shall then levy 20% VAT on these foods ' this will also be an increase for some foods such as confectionery and crisps from the current standard rate. I shall add a levy of £5 per packet to cigarettes and tobacco, and will keep alcohol under review at present. I shall return to providing free school milk and fruit in all primary schools, and fruit in secondary schools.

I also intend to exert more control on the money supply, and reign in the excesses of the financial institutions by controlling personal debt other than mortgages to purchase property. All citizens will have a personal gearing ratio that is related to their income and ability to pay, and it will be illegal for lenders to provide more credit than this maximum.

Finally, I come to administration of taxes. It is my intention that tax administration is simplified and that as far as possible all tax returns are filed online. Once again this will save significant staffing costs within the tax authority, and justify the significant investment of taxpayers money in systems. I do not intend to make incentive payments available for those filing online, as experience has shown me that this is often abused. I shall therefore ask Her Majesty's Revenue and Customs to work with taxpayers and the agent community to explore how online filing can be promoted, and how the overall aims to reduce the filing deadline to six months for all can be achieved, with the proviso that this must be in place (on both sides) by 2012. I shall require Her Majesty's Revenue and Customs to provide public statements about systems testing and progress to build confidence in the new technology.

All of the cost savings generated by the above measures will be used to retrain and reallocate HMRC staff to provide a more effective support to customers and their advisors, including the development of a special advisor contact unit staffed with a high level of technical expertise and the authority to make executive decisions. The right of appeal will remain.

I shall return to this house in twelve months time, and provide reports in detail on the progress of these measures, and indicate further areas of reform. I intend over the life of this parliament to reduce both the technical and the administrative burden of taxation to its rightful level.

This budget will create a healthy and prosperous nation true to natural justice and universally agreed social reposibilities

That is my Budget for 2006, and I commend it to the House.

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Richard Murphy
By Richard Murphy
30th Mar 2006 10:36

A note of regret
I note with regret that this article says that it is the AccountingWEB alternative budget and does not name those who put forwrad the various views which underpin it.

As a contributing editor to AccountingWEB I wish to make clear I did not offer a contribution to this article , and nor was I asked to do so. I furthermore do not approve of its content, which I believe to have been very poorly researched (if it was researched at all).

The proposals made in this article are not economically viable and would prove to be massively socially destructive within the UK. In addition, most of the suggestions made for taxation reform suggest that those who made them have never engaged with the complex issue of creating taxation policy.

I trust it will be read in this light.

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By User deleted
24th Mar 2006 15:50

Very creative, but...
On Wednesday we listened to the 'Brown Budget' or 'Gordon in Fairyland'. Now we have 'Wally in Wonderland'. Some of Wally's suggestions such as taking the family home out of IHT are quite good - others less so.

Both Chancellors give the impression that the UK is a pleasant place in which to live in 2006. Really? What about NHS Primary Care Trusts who are making thousands of medical staff redundant because they have run out of money?

And what about our politically correct police, who do not have time to deal with obvious and sometimes violent crime, but are bogged down with form-filling and the pursuit of non-politically correct targets? Community support officers will not help much.

The numbers of teachers leaving the profession early and the failure of many students to even assimilate basic reading skills tells its own story about education.

And what about transport? Those of us who travel on our inadequate and badly maintained roads or on crowded trains could share our own experiences about travel.

The Chancellor regards defence of our country as anathema. In effect Defence cuts and the foolish deployment of our forces in Iraq are leaving this country undefended. As someone who served the UK in the armed forces, I find this quite unacceptable.

Pensioners continue to have a raw deal. Not only did Gordon steal from their private pension funds by abolishing tax credit repayments in 1999 (with the help of Andersen, who deservedly no longer exist). Now Wally is suggesting that 'The State' steals the family home if older people go into State care. Definitely an Orwellian suggestion!

However, the vital question is - 'who is going to pay for all the suggested changes?' The current Chancellor has already been engaged in 'selling the family silver'. Now he proposes to borrow enormous sums of money in order ro fulfil his socialist principles during the next few years. The prospect of a bankrupt Britain is no fantasy.

Perhaps we are approaching the time when the Queen needs to bring in the Armed Forces to declare martial law. People such as politicians and human rights lawyers would be imprisoned offshore on a prison ship. Something needs to be done to save what was the UK from future destruction.

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By slarti
24th Mar 2006 17:44

Irrisponsible Breeders Charter?
"I therefore propose to raise the personal allowance to £10,000, with a further personal allowance of £2,500 for each child in the household aged under 18."

Better £2,500 for each child under 18, and then free contraception or sterilisation.

Why the h@1l should those of us who choose to be responsible with regards to overpopulation, support those who either choose not to, or just can't be bothered?

Slarti

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By dgwsoft
24th Mar 2006 21:51

Irresponsible breeders?
Your budget gets my vote, and not only because we would get ((corrected)) £40,000 of tax-free income! (Yes, we have 8 children aged 1 to 15).

Steve Taylor must know that the birth rate in the UK, and indeed throughout Europe is well below replacement level. Who does he think is going to keep him in his old age? It doesn't matter whether he thinks his pension is coming from taxes or private investments. Either way, there have to workers, and if there are only (say) half as many when he collects his gold watch, there will be (all other things being equal) only half as much tax, and only half as much profit from his investments.

The "irresponsible breeders" are those who fail to replace themselves, and rely on others to do so, and to bear the costs.

When people relied upon their own children to keep them in their old age, having children made economic sense. Now, when other people's children will keep you, it doesn't. The French have it right, in providing tax incentives to redress the balance, and the UK would do well to adopt this proposal.

The only bit I strongly disagree with is the proposal to tax 'unhealthy' foods. No food is healthy or unhealthy in isolation. It is the total diet, in conjunction with excercise, that is healthy or unhealthy. E.g. if you ate nothing but carrots you would soon be malnourished, and two pounds of butter a day is perfectly healthy for someone pulling a sled to the south pole. Moreover there is remarkably little reliable scientific evidence linking health and diet, which is why the advice changes almost daily. (Today's headline being omega-3 fatty acids, which suddenly aren't 'good' anymore). No, we should keep nanny out of the kitchen, and the supermarket.

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By User deleted
27th Mar 2006 19:14

Alternative budget rejected
The budget fails to address the radical reforms required to make Britain the economic powerhouse of Europe. Corporation tax should be abolished, together with the capital and other allowances and related rules that go with it. As all profits are either reinvested or paid as dividends, the income tax system should pick up the tax on transfers of income to individuals.
The system of capital allowances generally is a relict of a past society, so out this goes too.

There should be a a single rate of income tax, and an individual tax free allowance for every individual over the age of 18 who is employed, whether as a company director or employee.
Out with tax credits, all other individual allowances and the benefits in kind system. The flat rate of tax for income can be as high as 30% but not higher than 33%.

CGT, IHT and the other capital taxes should be abolished immediately, and stamp duties of any type should be paid only where the money used to finance the associated instrument has come from a source that has not been taxed already.

Social Welfare payments and pensions should be reserved for (a) pensioners (b) patients or (c) persons who elect not to work in order to raise children up to the age of 5. Otherwise, able bodies individuals should be required to contribute to a massive program to rebuild the infrastructure of the country, especially transport including motorways, health and education.

The NHS should be dismantled over a period of 5 years. The failure of the system to prevent in-hospital deaths through the spread of the superbug should be sufficient justification for this. All persons in receipt of taxable income should be required to join BUPA or similar schemes.

Persons who commit violent crimes should be required to complete all of their sentences in purpose built factories, enclosed by the usual prison security perimeters. The factories should be used to produce goods that are presently imported and purchased by Government Departments. The profits from these enterprises should be used to pay for losses caused by said violent criminals.

The UK should quit NATO, become militarily neutral, and retrain its military to civilian policing roles. Law and order has broken down in many of Britain's cities and this problem should be addressed as a priority.

A simple law that prohibits financial institutions from charging more than double the Bank of England rate for any type of credit should be implemented.

This budget would radically reduce the size of Government spending and direct the remainder towards promoting a better quality of life for all.

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By listerramjet
24th Mar 2006 12:55

hmmmm
making a play for the left recently vacated by the socialists then?

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