A pain free pre-budget report

Posted on: 17 December 2009 by Mark O'haire

Independent financial advisor Peter McGahan examines the latest pre-budget report.

A pre-budget report just before an election is never going to be too painful. If we expected anything other than vote winning ideas we were unrealistic in our expectations.

Such was my lack of interest; I avoided doing any of my normal phone ins and newspaper/website contributions and went to watch Snow Patrol with the children in Belfast. It seemed like a good gamble and it worked.

The pre budget report could be summarised via vote winning attacks and that's about it.

It's easy to tax and attack the rich and invariably the rich are the only ones who complain. But we have to think for a moment about why taxing brains may not be the best attack. Faced with the choice of setting up in business in Macedonia or the UK, one might feel a little inclined to trot off to the country that is a stone's throw from Greece and the beautiful Adriatic.

Personal tax is only 10% for both individuals and companies, who also enjoy 0% on any retained profits with only profits that are distributed being liable to tax.  With Labour costs at €428 per month you can see why companies may well consider it as a better alternative and the brains head Southeast.

Interestingly, incentives in the Technology Industrial Development Zones (TIDZ) has put tax at 0% for the first ten years, no Vat and customs duties for export production and a subsidy of up to €500,000 towards building costs!

So why would someone with brains want to stay here and be taxed to high heaven? I hope Mr Darling has thought that through, but if recent reports are correct, he may well have landed us all with a bigger tax bill for the future. As the brains disappear, someone else has to pick up the slack and it will be the middle earners (basically all of us in work) that will foot the bill.

A leading UK money broker has now reacted by offering to assist its entire staff in relocating elsewhere in the world to avoid the tax being paid. That doesn't seem illogical does it?

But in our keenness to hate the rich we need to understand that we all play our part in paying fair and reasonable taxes to keep the world spinning.
Without a fair tax regime, you repel entrepreneurialism, brains and solid hard working people.

Admittedly the 50% super tax is only being levied until April on bonuses over £25,000 but this appears to be supported by the conservatives and may signal a time for these companies to pack up and go.

Now whilst these banks are saying that people and capital are easily mobile, they will need to remember (when they are mid rant at a press conference) that our bank accounts are much more mobile than they are.

Much of this concern is actually relating to the feeling we, as tax payers have given the banks the capital so they shouldn't be paying bonuses. Hardly. What has in fact happened is that banks have been supported or protected with capital which is simply a digital transfer of information on a screen at best.

The banks however have used this opportunity to now charge higher interest rate margins. Whilst base is sitting at 0.5%, typical commercial deals are being offered at 4.5%.

The customer is also being charged a hefty 2% fee ingoing and often an exit fee. It's hardly appropriate.

After a few years the banks will pay back their debt or relinquish their support, the government will take credit for that and the tax payer will be content. The true pain however will have been felt via the unsuspecting businessman who has paid through the nose for access to finance, and those battered by falling sterling such as overseas holiday makers and importers of goods where sterling's demise has crippled the costs.

All of this noise will have gone unnoticed in the pursuit of a hung parliament.

By Peter McGahan

Need Expert Advice?

Peter McGahanPeter McGahan is an Independent Financial Adviser and Managing Director of Worldwide Financial Planning. Worldwide has won 16 Financial Times awards in the last four years. Peter has also been named the top media IFA of the year by Unbiased.co.uk in 2009.

Peter comments regularly in major journals such as the Mail on Sunday, Irish News and Sunday Times and is a weekly columnist for FT Adviser. He has also appeared on Working Lunch and the Today programme. In addition he is an expert on international tax matters for a range of international publications.

Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. The above represents the personal opinions of Peter McGahan. All information is based on understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up.

If you have a financial query you would like Worldwide Financial Planning to respond to, call 0845 230 9876 or email info@wwfp.net.



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