A naïve Budget that puts caps on aspiration
It has been dubbed an ‘emergency Budget’ since it comes after the surprise Conservative election victory in May. With no election for five years, Osborne has been more willing and able to make tough measures that could upset people. This should be largely expected, however, it is somewhat surprising and disappointing that the Chancellor has delivered the first Conservative-only Budget since 1996 that is in parts a cap on aspiration, in parts delusional, and in parts naïve.
Behind his rhetoric of blue collar conservatism to appeal to the ‘working people’ his party claims to champion, in some respects Osborne has put up even more barriers for those who want to get on in life through hard work. Of course, this flies in the face of the Chancellor’s message that today’s was a big Budget for big ambitions.
Tax relief on pensions – ‘cap on aspiration’
In a bid to demonstrate that we’re all in this together, the Chancellor is making radical changes to higher income earners’ pension tax perks. The tax allowance for high earners is being tapered away to a minimum of £10,000. This move is another bloody nose for those who prudently want to save to be able to achieve their retirement aspirations.
How can this measure incentivize people to work hard and save to secure their own financial future? Targeting pension tax relief is nothing short of a cap on aspiration to do better, to save more. It is another example of how politicians of all parties seemingly believe that pensions are an easy and convenient target to bolster government coffers as and when they need to.
This is short sighted in the extreme. Individuals being financially secure in later life must be actively supported by the government, not only because it means that people will be best-placed to have the retirement they wish, but it means that they are less likely to be a burden on the State later in life, and this will help ensure the country’s long-term, sustainable economic growth.
Worryingly, by highlighting that a Green Paper is to be published, the Chancellor is, in my view, hinting that tax relief on pension contributions could go altogether some point in the future.
Maintenance grants to loans – ‘a cap on aspiration’
By confirming that maintenance grants for students from poorer backgrounds will be converted to loans, the Chancellor is again putting a cap on aspiration. Those from less affluent backgrounds are now more likely to be deterred to going to university by the debt they will face and it will inevitably impact where students choose to live and which courses they take.
Curbing the non-dom tax status is ‘delusional and naïve’
Today the Chancellor has confirmed that the permanent non-dom tax status is scrapped. It is delusional to believe that there will not be far-reaching, adverse consequences to taxing the wealthiest in our society more harshly.
It is a naïve policy measure in the extreme. Why? Because it is almost certain that the move will trigger an exodus of many of Britain’s most successful wealth and job creators, who also support the Revenue through their significant UK income tax receipts and personal spending. Can the UK afford to lose these people when other countries are vying hard to attract them?
In addition, it is going to make Britain a less attractive place to work for top international talent, meaning lower tax revenues. This can all only bode ill for the UK’s sustainable, long-term economic growth.
Even if the tax raid brings in the estimated £1.5bn reported by Osborne, the underlying economic cost will be much higher than the narrow fiscal boost.
Inheritance tax – ‘a step in the right direction’
Whilst an increase in the inheritance tax threshold to £1m for married couples by 2017 is a step in the right direction, as always, the devil is in the detail. Behind the smoke and mirrors headline grabber, there is only a new inheritance tax allowance of £175,000 on homes left to children or grandchildren from 2017.
IHT is universally regarded as one of the most despised taxes as it is, essentially, a form of double taxation, and passing on a decent legacy to our loved ones is a very human instinct. Osborne missed an important opportunity to go further today on inheritance tax.
Nigel Green deVere Group
Blog written 9th July