Stamp licking budget

Peter McGahan looks at how the 2021 Budget will affect you as a consumer, your mortgage and lifetime allowance for pensions.

Bank of England 1

Most budgets are like a stamp licking competition, especially now that you don’t need to lick them. You build up to the excitement of something happening and hey presto, nothing does.

Whilst the budget delivered reasonably benign information, we have ‘Tax Day’ to follow.

This ‘day’ will create a plan for long-term changes in the government’s tax policies. I know what you are thinking – the budget should be doing this. This is really about signaling the government’s policies over the coming years. Watch out.

Most experts believe this will include policies on Capital Gains Tax, and environmental levies for example. It is hard not see the UK moving toward policies that make the UK more sustainable and hopefully incentivizing green energy innovation.

We’ve already seen the extraordinary outperformance of green energy stocks over the oil majors and incentives away from these companies and onto sustainable energy can only make more sense.

It’s logical to tax carbon and use that to fund/incentivise green energy innovation.

Remember the UK will be hosting the COP 26 (Conference of Parties) international climate talks in Glasgow in November, and all eyes will be on that and their climate and tax plans.

We’ve long given up on what they may or may not do in changes but aligning Capital Gains Tax to Income Tax has long been on the cards, or at least tightening the exemptions available.

Most of the ‘this is what we are thinking of doing’ is about testing society’s reactions, but a beaten and tired society as we are today, is unlikely to put up much of a fight. Any move toward supporting green sustainable energy won’t be fought.

If we have energy available here, why import from elsewhere?

Headlines from this budget include ‘not much happening’.

Fundamentally, the issues lie around reigniting a battered UK Economy that has been clobbered by Brexit build/worries, Brexit realities and Covid-19 – the imperfect storm.

I agree with the budget. We all need good news and whilst I know income tax thresholds have been frozen et al, we need to rebuild this economy very quickly.

Over my thirty-four years, many studies have been created on the subject, and taxing to raise revenue is not as successful as encouraging entrepreneurship and growth. By funneling and encouraging growth, perhaps the planned taxes of future years may not reach the levels suggested.

In any event, the UK Corporation Tax at 25% (by 2023) is still the lowest in the G7.

Over taxing homegrown organisations is, and shouldn’t be the target as we all know. It is the organisations who just don’t feel like paying tax, bless ‘em.

The world’s most corrosive corporate tax havens are all British Overseas Territories.

Circular economies do not work where hoovers are stuck over economies and suck out its revenue without circulating the tax back through. That is where the real targeting needs to be from a tax point of view.

Headlines of this budget are a freeze to the personal income tax allowance, which hits the tax payer by £8bn per year; Extension to the furlough scheme, extension of business rates and a grant to the high street business.

With inflation at benign levels now, tax freezes are less of an issue, but if the economy moves as they hope – by definition, that is inflationary, so higher interest rates and an increasing gap in your spending power becomes more likely. Fix your mortgage now?

Savings ratios rocketed last year and have been used as the saving grace when we are all allowed out to play. Not necessarily so. That’s a political bowl of jelly to stick to a tree.

Savings ratios dropped from c27% to 16.5% at the end of last year. Where did that go, because it did not create the euphoria they are forecasting.

In reality, people have paid down significant personal debt, which is a good thing

Assistance to the self-employed is welcome, offering to pay 80% of three months average trading profits. They have been hard hit.

Worryingly and poorly thought through is the impact on the lifetime allowance for pensions.

The NHS is already under extreme pressure to find staff and this measure pushes senior doctors to retire earlier to avoid 55% tax charges. Rethink.

If you have a financial question relating to the topics covered in this column, please call 01872 222422.

Last modified: March 17, 2021

Written by 11:22 am News & Views