Where’s the pain and gain in Budget 2010?

Monday, March 29, 2010 | Posted by: Richard Jameson
Categories: Economy, Tax | Tags: tax, entrepreneurs, economy, income tax, CGT, Richard Jameson, budget, NIC, Alistair Darling, relief, Gordon Brown, stamp duty, fiscal drag, budget2010, PSBR, election, economic growth, budget deficit

Attempted headline-grabbing announcements, stealth taxes and the devil contained in the detail – that was the style of Chancellor Alistair Darling’s Budget 2010 speech. As for substance it held no great surprises.

So where are the savings (and where is the pain) for companies and high net worth individuals?

Shoring up the markets with bright projections
The key aspect to this Budget was the economic projections to shore up support from the markets for the pound and the wider UK economy. Unlike Gordon Brown, there was no mention of a ‘Golden Rule’ or the terms of the ‘economic cycle’. Instead, the focus was on how government borrowing would be cut and in what timeframe. The answer lay in the forecast growth of the economy, ‘efficiency savings’ within the public sector and cuts in public spending. Still, the detail was scarce and the growth projections were received with a healthy dose of scepticism.

Stamp duty goes up for properties over £1 million
There was little detail of any new tax measures – aside from a headline-grabbing stamp duty land tax holiday for first-time buyers of properties below £250,000, and a new 5% rate (up from 4%) for properties over £1 million. A Conservative idea in Labour’s clothing?

Rise in victims of ‘fiscal drag’
While the Chancellor referred to the pre-announced tax-raising measures for a 50% rate of income tax, restrictions of higher tax relief on pension contributions, and the National Insurance increase from April 2011, he failed to acknowledge the effects of ‘fiscal drag’, which impacts the majority of taxpayers from 6 April 2010.

With inflation currently running at approximately 3%, the tax allowances for income tax (as well as capital gains tax and inheritance tax) have been frozen from 6 April 2010, meaning that more people will pay more tax in real terms and that their net income or spending power declines.

Relief for entrepreneurs
There was some good news for small business (a doubling of entrepreneur’s relief for capital gains tax purposes, and a doubling of the annual investment allowance for businesses claiming tax relief). This could mean a giveaway of £80,000 if you are thinking of disposing of your business.

However, given the effects of fiscal drag and the impending rise of National Insurance across the board, businesses and workers will be in no doubt that there is significant pain to come. As a result, you may be inclined to turn to drink, but you’ll be hit there, too…

Cider’s no longer so sweet
Sin taxes (booze and fags) also rose above inflation; cider took the brunt with an above-inflation increase of 10%. Taxes on fuel will also rise, albeit staggered over the coming months.

So, no great surprises for a pre-election Budget. You have to wonder what relevance it will have, as many expect another emergency post-election Budget to follow in the summer, when the electorate may expect a starker and more frank depiction of the economic outlook and any further tax rises – whoever is in power.

Image: © Podknox

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