This article represents the views of its author and not necessarily those of ShareSoc.
The Chancellor has taken steps to drive forward the Government’s desire to simplify the personal tax system for individuals. This has included the removal of a new tax charge (the Health and Social Care Levy), the removal of an income tax bracket (the additional 45% tax rate) and the reversal of the 1.25% increase to dividend tax rates from April 2023.
However, in his Statement on Thursday the Chancellor did not tackle a number of the quirks that remain in the income tax, and indeed tax credit, system. These include the removal of the personal allowance, which occurs once individual income exceeds £100,000 resulting in 60% effective marginal tax rates, nor the removal of child benefit where one parent earns more than £50,000 (rather than considering this on household income basis), which also results in a higher (effective) marginal rate of taxation.
I and many others share the desire to simplify the income tax system and am surprised this has been overlooked. Some commentators have suggested the abolition of the Office of Tax Simplification is somewhat counterintuitive to the desire to simplify the income tax system and had it still been there these taxation anomalies would have been spotted, considered and sorted. I disagree. We need simpler, faster, better regulations and regulators. The problem is that regulators very rarely remove regulations and simplify – instead they cannot resist the urge to tinker, but this invariably adds complexity. I (and ShareSoc) prefer principles over rules. The abolition of the Office of Tax Simplification (an oxymoron of a name if ever there was one. Since it was formed the Tax Code grew even larger.) is a hugely positive step.
But let me be clear. In this bonfire of the unnecessary red tape, we must ensure that necessary protections are in place. We cannot have another Woodford debacle. Principles must be clear: and when rules are written their intent and meaning must be clear too.
History has taught us that when tax rates are excessive (in this case 60% on income between c £103,000 and £120,000) people will seek ways and spend time and money on tax avoidance and tax planning. It is far more productive for the economy that these people do not waste their time on unproductive activities but instead work to make the economy better and more productive for all.
It is not too late for The Chancellor and MPs to amend the tax rules to sort out these tax quirks, when the mini-Budget is debated in Parliament.
Cliff Weight, Director, ShareSoc
Whilst I agree with some elements of this post, let ME be clear: I disagree strongly with much of it.
Firstly, I would replace the word “Good” in the subject with “Awful”. This “fiscal event” is uncosted. The government has refused to allow the OBR to publish its forecast of the consequences of these tax cuts. This is irresponsible, when huge spending is already required to prevent mass personal and small business bankruptcies and/or suffering as a result of the unprecedented rise in energy costs.
The market reaction, driving down sterling and pushing up interest rates, demonstrates what the market thinks of this announcement.
Secondly, in what world is this time to ease the tax burden of the best off in our society, when those at the bottom end of the scale are struggling to meet their ordinary living costs? In my eyes removing the 45% tax band is immoral when the country’s finances are in dire straits.
I do agree that anomalies in our tax system (such as the 60% marginal rate Cliff mentions) should be removed (and I understand that Kwarteng intends to do that in a future announcement). I don’t quibble with the OTS comments either (an invention of that fiscal “genius”, George Osborn).
What I also support are some of the proposals to reduce bureaucratic frictions, in particular in the planning system. We need to get rid of the interminable delays in implementing vital national infrastructure projects. Getting such projects underway more promptly really can boost the economy both in the short and the long term.
I would not call it “awful”. On the whole sensible given the circumstances and the need to act quickly. Perhaps removing the 45% income tax rate at this time was politically insensitive but better now than later.
Still think unfunded tax cuts for the wealthy were a good idea?: https://twitter.com/Peston/status/1575086480741236736. Even the IMF, not known for its socialist tendencies, is highly critical: https://www.reuters.com/world/uk/imf-says-uk-fiscal-measures-will-likely-increase-inequality-urges-rethink-2022-09-27/
I suggest their views might be politically slanted.
“vital national infrastructure projects” Um, you mean like HS2!!! It is private sector investment that is required to drive productivity; public investments rarely do despite the hype.
I did not specify whether the “national infrastructure” should be publicly or privately funded/owned. Planning delays have stymied its building, irrespective of who sponsors it, e.g. nuclear power stations we’re now suffering from a lack of. One of many types of project that suffer from interminable bureaucratic delays.
My post has not aged well. But I still believe shredding much of the red tape and streamlining planning rules, etc will improve investment in the UK, and more investment means more potential growth whereas less investment can only mean less GDP per head.
I note that ROCE from Government infrastructure projects is typically much less than in private ones.
Looks like the Budget changes (tomorrow) to Pension LTA and contributions will change the impact of the nonsense of the 60% tax rate – a classic case of failing to address the causes and a misplaced opportunity to simplify the tax system. Nevertheless I support the increase of the LTA to £1.8m. At last some retrospective taxation that will benefit successful investors.