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Sajid Javid gets to grips with the tax system

Philip Fisher questions the political and fiscal wisdom of three prospective changes to tax legislation that are currently doing the rounds.

23rd Jan 2020
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Sajid Javid
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The jury is still out as to whether the Chancellor of the Exchequer has got to grips with any part of the UK tax system.

He has now been in office for over six months and still fights shy of making any substantive statements about tax policy. And now there is also an increasing risk that promises made by the Conservative Party in their election manifesto might prove to be “fake news”.

Over the weekend, Mr Javid gave an interview to the Financial Times in which, to quote from the BBC, he “hinted” at tax rises. As my recent article on March’s Budget reminded readers, the government stated that it would freeze income tax, national insurance contributions and VAT, leaving very little wiggle room.

Most worrying is the direction indicated by the first two statements of tax policy issued in quick succession on behalf of the Treasury. Oddly enough, neither of these ideas was on my Budget wishlist, nor suggested by any of the respondents. In the best traditions of recent Chancellors, they both appear to be rather inept knee-jerk reactions to what might not entirely politely be described as cock-ups.

Trouble brewing on the NHS front

This government and its predecessor have known for some time that trouble was brewing on the NHS front since doctors were retiring in droves and refusing to work long hours. To do so was literally costing them money. That bizarre situation arose from the introduction of pension rules without due consideration of the impact they might have on hard-working, public sector staff.

For some time now, the Treasury has been striving to come up with a simple solution to the problem and was very obviously struggling. Instead of addressing the issue directly, it is rumoured that Mr Javid and his pals have come up with a particularly inelegant solution by increasing the pension taper threshold.

Using all of their training, doctors have rather hilariously described this as “a sticking plaster.” However, others will argue that it is a sop for those disappointed that the Prime Minister has broken his pre-electoral commitment to increase the higher rate tax threshold from £50,000 to £80,000.

Plans and policies

The new plan, which will presumably be introduced in the Budget on 11th March, is apparently to relax the pension rules. It will offer everybody on higher rate taxes relief of the kind needed to get the doctors (at least those who have not already quit) back to full time working.

The second sledgehammer that is being used to crack an unfortunate nut relates to the imminent demise of Flybe, an airline supported by a number of big guns but cannot run much of its business commercially. Rather than let it die, as the government did with Thomas Cook, the Chancellor is reportedly planning to let the airline defer its payments of Air Passenger Duty. All while refusing to level the playing field by making a similar concession to its competitors.

I don't want to sound as if I lack faith in the tax policies mooted to date. But if it is possible to exempt Flybe from tax obligations, surely a government department dedicated to the protection of revenues and collection of tax can come up with a solution for doctors. It has been a long time since we had a Budget with more than a handful of significant measures. And, in theory, all that we are due in March is a Spring Statement rather than a fully-fledged financial rehash.

The Chancellor might even complete the hat-trick should he back down on the Digital Services Act bowing to threats of tariffs from the United States, which wishes to protect the likes of Google, Amazon and its own tax revenues. Readers can decide for themselves what message such action would give President Trump regarding future trade negotiations.

Given the uncertainties that leaving Europe will bring over the next 12 months and quite possibly the next 12 years, it would be good to see Sajid Javid getting to grips with tax matters sooner rather than later. He could start by introducing some of the more enlightened measures included in his party’s election manifesto, and, in doing so, demonstrate that he might have what it takes to be the right man for the job.

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