Budget 2007: Opinion - Sleight of hand and election fever! By John Newthby
One of the television commentators on the 2007 budget referred to Gordon Brown as a conjuror. I tend to agree. Many of the so-called ‘give-aways’ were counterbalanced by ‘takeaways’, and the budget was notable in some respects, not for what was in it but what was not in it. The budget was clearly designed to appeal to the electorate before the government leadership change and even possible General Election. It will only be the headlines that the ‘man on the Clapham omnibus’ will understand – not the small print.
I have only been able to skim through the 81 Budget Notes and 190 pages of script, but it is clear that many of the provisions are extremely complex. Goodness knows how long the Finance Bill and Finance Act will be. Whatever else results from the 2007 budget, it will be a bonanza for accountants, lawyers and tax advisers.
Much will be made of the reduction of the corporation tax rate by 2% to 28%. However, this does not commence until 1 April 2008, and in the case of small companies is counterbalanced by an increase in the small companies rate by 1% a year from 1 April 2007 for three years, resulting in a final rate of 22%.
The extension of the initial allowances for small businesses and the introduction of an investment allowance look attractive. Remember, however, that the industrial buildings allowance is being abolished, and the writing down allowance on plant and machinery is being reduced from 25% to 20% a year.
Much will be made of the reduction of the basic rate of income tax from 22% to 20%. Once again it does not commence until 6 April 2008, and is largely counterbalanced by the starting rate of 10% on employment and pension income being abolished.
Middle income taxpayers have again (surprise, surprise) been the target of the Chancellor, as the increased higher rate threshold of £43,000 is being aligned with the limit for national insurance imposition.
Much is made of a joint family CGT exemption of £18,400. All that has happened is that the individual exemption has been increased to £9,200.
The increase of the IHT exemption to £350,000 in 2010 is welcome, but based on the current inflation in residential house prices, all this does is to partly keep in touch with inflation. It was too much to hope for a relaxation of stamp duty on residential properties. That is a real ‘cash cow’ for the chancellor.
As a pensioner I welcome the increase in the personal allowances for those of pensionable age. It is also good to note that the government is at last recognising the plight of those whose occupational pension schemes collapsed.
Nothing will recompense pensioners and charities, however, for the theft by the government when the tax credit on dividends was abolished in 1999 (with the help of Andersen). I personally lost £thousands as a result of this, and I know many others in the same situation. It is one of the reasons that I have worked almost full time until age 70.
The budget notices need to be studied in detail. BN79 is an ominous one, as it confirms the new penalty regime for tax offences.
How are all the ‘goodies’ going to be paid for? The Chancellor was silent on total government borrowing. While ‘throwing’ money at the NHS and education is welcome in theory, it will be money ‘down the drain’ unless those particular services are managed properly.
This is a budget that flatters to deceive. It may in fact be almost neutral in its tax effect. Time will tell about its real effect when all the small print has been studied carefully.