I reminded myself that this was a mini budget statement as I pondered some of the items which were missing from the headlines. I was also cautioned by one of my canny farming clients this morning that the devil is always in the detail.
Having said that, I thought there was a lot to like about the main thrust of the budget proposals. The increase in SDLT thresholds designed to reduce the log jam at the bottom of the market and also help first time buyers was particularly welcome. I take the point that there is no substitute for actually building more houses to satisfy demand and take heat out of the housing market.
Mr Kwarteng has also addressed one of my hobby horses by making the annual investment allowance of £1 million permanent (though that might beg a philosophical question as to what is permanent?). It now means that my clients can look at buying kit purely on need and functionality, rather than having to consider timing of the acquisition where that might make the difference between having £1 million subject to full immediate write off or just £200,000. A very welcome move.
I did not get overly excited about the reduction in the top rate of income tax (45%). I feel that if someone can earn half a million pounds they will probably choose to do so. The reduction will now save them £17,500 in tax. Mr Kwarteng has not addressed my two particular issues with the income tax infrastructure. Firstly, the threshold of £100,000 at which personal allowances are abated. This is my “Jimmy Greaves principle”. There are a lot of people who earn £99,999 to avoid suffering a marginal rate of tax of 50% to 60% on the next slice of income. The second threshold which needs attention is the threshold at which higher rate tax bites (currently £50,270). At this point one can start to lose child benefit as well as paying the higher rate of income tax. Throw in student loan repayments and someone in the range of £50,000 – £60,000 income can find that they have a marginal rate in excess of 70%. Anecdotally, I hear too many stories where an employee has received a very attractive bonus only to find that HMRC are taking the lion’s share of the bonus. That simply can’t be right. Perhaps the Chancellor will turn his attention to this anomaly at another time.
I would also like to see changes to the pension regime which currently prevents people putting as much as they would like into their pot.
The reduction in the income tax rate, the cancellation of the increase in Corporation Tax rates and in National Insurance were well trailed and they will help many of my clients so that pleases me.
Paul Short – Partner