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Fantasy Budget: Simply is best

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Having harboured dreams of being a politician for years, Giles Mooney is ready to reveal his ideas to simplify the tax system while boosting the Treasury’s coffers.

16th Nov 2023
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I’ve always wanted to be a politician. I think I’d be quite good at the actually doing stuff bit, it’s all the other stuff that puts me off – other politicians and constituents. And, of course, the one job I’d want (OK one of two jobs) will come as no surprise to anyone who knows me. So when I was asked to write a fantasy Budget for AccountingWEB ahead of next week's Autumn Statement, well, let’s be honest, it’s as close as I’m ever getting to the real thing.

The first thing that shocks most people is that we are, fundamentally, undertaxed as a country so don’t expect any tax cuts in what follows. But I promise to spend your money wisely. Free school meals for all junior school pupils (including provisions for those in need through school holidays), extra money to feed children via breakfast clubs across the country leading to an improvement in educational standards, money to educate people on healthy living, care at home for the elderly that isn’t a cursory 15-minute visit, development of cycle paths and fitness equipment in parks, repairing roads but working to improve green transport links… you get the general idea. 

But which taxes am I putting up to pay for my green and pleasant land?

Raising money for the Treasury

First things first, we need to get rid of national insurance contributions (NIC) of all kinds. Rather than a 12% (or 2%) addition, I’d add it on to income tax. 20% would become 33%, 40% would become 43% and 45% would become… 50%. And, yes, it would be on rental income and earnings for those over the state pension age. And dividends. 

As well as raising money for the Treasury, this would be the simplest way to challenge owner-managed business (OMB) dividend vs salary questions and IR35 and would make the buy-to-let market less attractive, freeing up properties for owner occupiers to get on the ladder.

I would keep savings out of the increase and would keep the slightly reduced rate on dividends (compared to earnings) to encourage investment but other than that I think paying a third to the government to run everything and pay people properly, fund education and hospitals seems reasonable.

Looking ahead to pensions

Of course, people should also be investing in their retirement so we should look to pensions. The annual allowance structure makes no sense, and never has. Picking an arbitrary number and saying that’s what you can have irrespective of age is ludicrous. The old system was much better with a percentage of your income, raising as you get older. That should come back in and if you are rich and want to pay in lots, good for you. I’ll have my share of whatever you’ve left when you die.

Having said all of that, I’m conscious that my plans are going to increase tax take quite dramatically, probably too dramatically, so I’ll soften the blow. The living wage is, data suggests, £23,400 per annum. I think it’s reasonable that, until you get to that point, you shouldn’t pay back in. I would aim to increase the personal allowance to that level as soon as possible.

Investments and relief

Investment is obviously a tricky one, especially when it comes to capital. And capital gains tax  (CGT) would be a big one for me. It’s far too low, even on residential property at 28%. I would return it to the marginal rates of income tax (yes, the ones I just increased). There should be reliefs for business assets (not just businesses) which I’d leave at 10% irrespective of business size (apart from cash balances and investments – see later), I’d leave private residence relief in place and I’d introduce a larger relief for those using some of their gain proceeds to invest in community projects and charities.

Inheritance tax deserves a mention and is one of the few areas I would cut the cost of to many people. £1m nil rate band. The end. No business property relief. No agricultural property relief. No spouse transfers (but a credit would be available to delay paying until the second death). Fairer than we have today but far from generous for those with the largest estates. I didn’t say I was cutting the costs for everyone!

Business not as usual

Corporation tax is difficult. You want to attract businesses to the UK but you need them to pay their way. And many large corporates reasonably point out how much they pay in employment taxes, employers NIC (which I’m getting rid of) and VAT so pushing the rate too high will hit profits and restrict investment. We also have the problem that, after the simplification of a decade ago, we’ve returned to marginal tax and three effective rates. I would bin that structure immediately and introduce a flat rate of 30% for all companies. I think there’s a strong argument for going higher like many other major economies have, but 30% seems about right for now.

There’s one more thing I’d do for companies though. Companies are formed for a range of reasons and, by increasing dividend rates and capital gains tax rates (especially for cash and investments held through companies) I take away two of them and leave more sensible, non-tax reasons for incorporation. 

If you set yourself up as a company and pay yourself dividends or salary in my new tax regime you’re not benefitting from being a company so why should you be punished? To help with that logic, I’m going to introduce an exemption for all companies with profits up to £50,000. No tax at all for a company up to that level. But from then on you’re in for all taxes. Including VAT. A £50,000 threshold for all businesses on VAT wraps up my budget. Still higher than most countries but lower than we currently have. I’d also have £50,000 as my permanent threshold for Making Tax Digital for the self employed and companies with a requirement to file accounts, income and expenses and then (annually) tax figures electronically. But not below that threshold.

Curbing changes and complexity

It might seem strange that a man who makes his money talking about the complexity of tax and by selling software wants to make tax simpler and reduce the number of people forced into electronic administration, but it strikes me that forcing changes and complexity does nothing but encourage avoidance schemes and evasion, boosts the black (or at least grey) market and increases the resentment against HMRC. That has to stop – one thing I would definitely do is increase HMRC's funding to allow it to pursue those who don’t pay their increased but simplified tax. Funding to improve response times, to help train those on the coal face and a computer system fit for the times we live in.

Now, here’s the beauty of writing this article. I’ll never actually have to do this or get re-elected having done it so that takes the pressure off and I can say what I like. I just have to survive the hatred and loathing of the comments section below. And I can do that because I know (and I suspect some of you do too) that I don’t necessarily believe all of the things I’ve said. My goal was to start a conversation about a world where we change tax rules because it’s the right thing to do for the country and its population. Not because it’s politically expedient or of personal benefit. Until we change that mindset in our politicians, we’ll never be able to move forward. Here’s hoping it’s not too far away. And, by the way, the frustration of seeing that day in and day out is the third reason I’ll never become a politician.

I commend this article to the house.

Replies (17)

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By Justin Bryant
16th Nov 2023 16:06

Lots of misconceived/bad ideas here. "...and would make the buy-to-let market less attractive, freeing up properties for owner occupiers to get on the ladder."

That was the mistake Gideon has made already (and BTLs are already thereby significantly less attractive) and now private rents are at record highs (due to massively reduced supply of available private rental properties since 2016). See:
https://www.thisismoney.co.uk/money/buytolet/article-12743015/More-landl...

BTL investors could just switch to investing in (residential letting) property companies in ISAs etc. It also overlooks that indexation was abolished re lower CGT rates.

Here's some better ideas: https://www.accountingweb.co.uk/any-answers/potential-fuel-duty-increase
https://www.accountingweb.co.uk/any-answers/wow-a-sensible-labour-party-...
https://www.accountingweb.co.uk/any-answers/spring-budget-2023

"Fuel duty – Chancellor has spent £10bn over 3 years on extending the fuel rate cut and (again) not indexing the duty. This raises some questions. If the government is determined never to raise fuel duty, why does it budget on the assumption that it will? And what will replace that assumed contribution to ‘balancing the books’ when we are all driving electric cars?"

https://www.tax.org.uk/spring-budget-2023

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Head of woman
By Rebecca Cave
17th Nov 2023 09:20

Bravo!! Some great ideas there Giles.
I particularly like the high thresholds for all taxes, and the alignement with the VAT threshold. But would all these thresholds be indexed linked?
The VAT threshold of £50,000 would just lower the current cliff-edge problem where businesses stop trading (or stop declaring income) at £84,900, and it may be more difficult to avoid - for honest traders.
You didn't mention the HICBC. That would be first on my bonfire of tax messures.

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Replying to Rebecca Cave:
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By Amy Chin
17th Nov 2023 10:42

And mine Rebecca. Burn the barnacle!

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By ourpetsheadsarefallingoff
17th Nov 2023 09:43

I was with you all the way until the £50k VAT threshold!

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By graydjames
17th Nov 2023 09:53

Wow! That's a great budget - if only, if only. I agree with almost all of it. My only doubt surrounds the £50k exemption for companies for CT. That feels generous to me and runs counter to most of your other measures. Nonetheless, brilliantly radical and above all, on the face of it, very fair (although I can think of a few who will cry foul - oh look one of them already has!)

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Replying to graydjames:
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By Justin Bryant
17th Nov 2023 10:07

But if you read the links in my above comment they are all the relevant facts that justify my comments. The OP does not support his comments with any such justifying facts as far as I can see and indeed glosses over key facts such as the abolition of CGT indexation relief as I stated above. (You'll recall LT/KK did such a "simple" (mini) Budget without key supporting facts/analysis and look what happened to them.)

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Replying to Justin Bryant:
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By Justin Bryant
24th Nov 2023 16:48

"Demand for rental properties is currently running at 27% above the 5-year average, according to Zoopla. The Royal Institution of Chartered Surveyors (RICS) supports this, with their October 2023 UK Residential Market Survey showing an increase in tenant demand in the three months to October.
This comes alongside a continued fall in landlord instructions across the UK. This signifies that this high demand remains unmet by the dwindling supply and increasing prices across the rental market. Based on these conditions the RICS report predicted a further rental increase of around 4.0% on average across the UK over the next 12 months."
https://awh.co.uk/wp-content/uploads/2023/11/AWH-UK-Property-Market-Comm...

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By Amy Chin
17th Nov 2023 10:44

Very good, Chancellor Mooney. I particularly like the idea of matching the personal allowance to the living wage.

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By indomitable
17th Nov 2023 11:31

As far as I am concerned state spending as well as taxes need to be reduced NOT increased.

The economy needs to grow and investment needs to be encouraged.

Governments have proved themselves not to be wise spenders of your money so the less they have the better.

There has always been a tendency that the more money you give to government the more they waste it.

Small state low taxes in my view, so whilst I agree the system needs simplification the overall burden needs to come down.

I am always astounded and disappointed with how much tax we pay in this country and how little we get in public services for it.

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Replying to indomitable:
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By Justin Bryant
17th Nov 2023 12:32

Yes, per para 27 here it cost just 15% of GDP in taxes to run the whole British Empire before WWI and now it's c40% to run just this country's lamentable public services.
https://www.bailii.org/ew/cases/EWCA/Civ/2023/1332.html

These left wingers don't like to talk about how to make public services more efficient do they* and just bang on (à la DN/RM) about increasing tax on the rich (in which class they always include BTL landlords) who already pay more than their fair share of UK tax**, which results in lower growth as we are seeing now (due to incentives all being thereby wrong)?

* Just look at MTDfIT, which is the exact opposite of efficient or this other recent example: https://www.accountingweb.co.uk/tax/personal-tax/hmrc-fails-in-pursuit-o... .
**For example, a rich foreigner now typically pays SDLT of c17% when buying a £20m Mayfair dwelling. That's virtually the 20% VAT rate and then there's 40% IHT when he snuffs it. That's more tax than the entire inhabitants of most small UK towns (outside SE England at least) pay each year in income tax.

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Replying to Justin Bryant:
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By Justin Bryant
17th Nov 2023 14:11
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Replying to Justin Bryant:
By coops456
26th Nov 2023 10:43

I'm not sure that running the British Empire is a reasonable comparison; after all, we were stealing natural resources from multiple countries whilst exploiting their human resources. No doubt that kept our costs right down.

Furthermore, there was no NHS, state pension was for the tiny number of over-70s and kids left school at 14. Not a UK that I'd want to live in.

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By Open all hours
17th Nov 2023 11:50

Vat threshold £200K unless we can abolish it altogether. We’ve just waited 371 days for a registration. HMRC can’t cope now so £50K would probably break them. Then again, maybe you’re on to something…?

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Donald MacKenzie
By Donald MacKenzie
17th Nov 2023 12:36

I start from a position of deep scepticism of the ability of the state to spend well. We see repeated failures to implement digital processes, enormous waste in procurement (eg Min of Defence) and a bloated bureaucracy with far too little output form those STILL "working" from home.

We first need to decide the level of spend and then how to raise that in taxes.

Government interference in business results in little benefit except for those playing the rules to gain. How many extra films have been made as a result of film credits, compared to cost to us all from dodgy schemes. How much real new R&D has been funded compared to costs for dodgy claims.

We need to simplify the tax system to reduce scope for abuse and dodging tax.

I would merge income tax and NI, including employer NI, and have following rates.

Current zero band increase to about £15k
Current 20% band (currently 20% tax, 12 % employee 13.8 employer- total 45.8%) set at 45%
Current 40% band (currently 40% tax, 2 % employee 13.8 employer - Total 55.8) set at 55%
Current 45% band (currently 45% tax, 2 % employee 13.8 employer - total 60.8) set at 60%

Wages rates and salaries would need to be adjusted to account for shift in take from employers to employees.

Dividends and interest income would be taxed at the same rates, with an allowance or £1,000 and £500 respectively to save having to report relatively small amounts.

The VAT threshold should be reduced to £50,000.

MTD (as curently planned) should be binned. It makes sense to ask businesses to report more frequently, and sooner, but it should only apply using the same threhold as VAT registration and could be an extension of the existing VAT report process. Any trader in VAT system already reports VAT turnover. It would not be hard to amend the VAT report to include perhaps Turnover, expenses and net profit.

Corporation tax at 20% for first £100,000 of profits then 22% on the balance.

The 5th on the month would be replaced by calander month ends for all taxes. No more 5th April for PAYE, CIS etc. Tax year to 31st March.

Self-assessment Tax returns would be due by 30th September and payable by 30th November.

Most Corporation Tax Returns would be due six months after their company year end and tax payable after seven months. Large companies four months and six months.

HMRC would have resources to investigate businesses and individuals not paying the taxes due. At present it seems very few compliance visits are happening.

HMRC systems need an overhaul and change of direction. It is not the job of HMRC to direct businesses to adopt digital processes. Any taxpayer who wants to, already uses such systems, the rest would not benefit from such a change.

Simplify benefit in kind rules. If an employer provides something to an employee it is taxable on the value of the benefit, that being cost in most cases. It could be cost less what the company would have had to pay in expenses to the employee if they had to provide it to do their job. eg if company provide a car but would have had top pay employee for mileage if using their own car.

Raise inheritance tax threshold to exclude more people from worrying about this tax.

Remove the Capital Gains tax relief on gains on private residence sales. These gains are not the result of any effort of skill by the taxpayer. Tax capital gains at same rate as other types of income to stop people disguising trading income as capital gains.

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By Postingcomments
17th Nov 2023 14:49

Stick to delivering your ATT style webinars, Giles. No, seriously, do - they are fun and take me right back to ATT school.

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By AndyC555
20th Nov 2023 11:16

"I’ll have my share of whatever you’ve left when you die."

Says it all really.

How much do you think "your share" of someone else's lifetime's work is? And why?

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By simes
20th Nov 2023 11:43

I think Giles has overlooked that company dividends are paid out of taxed profits, so all dividend taxation is double taxation. With dividend tax rates as high as Giles suggests, there would not be much point in many businesses incorporating.

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