The Tory leader has laid out when the second Budget will be next year and some of what it will contain if a new Conservative government comes to power. David Cameron announced 2010’s second Budget of the year before Mr Darling has had chance to deliver the pre Budget report – let alone the 2010 Budget. He did add that the general election next year would be a hard fought battle, but he promised a Budget within 50 days of being elected if the Conservative party win the general election (which must be held before June). Cameron also had hard policy news for viewers of BBC One's Andrew Marr show on Sunday morning. In something of a coup, Marr managed to draw from the Tory party leader a specific statement on various elements of economic and tax policy. Key tax promises I established quite quickly that the Conservative party would not only reduce the main rate of corporation tax to 25% but that it would also reduce the small company rate to 20% again – although timing for any changes other than those announced on Sunday would be speculative. This surprised me in part, as I have believed for some time that a single rate of 25% would serve us well, eliminating the complexities of the associated company rules when calculating tax liabilities, and also adequately countering tax motivated incorporation. So what 'reliefs' might be abolished? How will this be funded? The yield from the increase in the small company rate is also difficult to measure, particularly as the 2007 predictions cannot be relied upon – the last of the rise has yet to be enacted. However, from the Red Book for 2009 we can establish that the cost of the small company rate as a whole is £4.5 billion, which would not actually rise if both rates were reduced in tandem as it is measured against the alternative full rate. However, abolishing the small company rate would present the opportunity to eliminate that cost – this would be a very useful saving, but the Conservative party clearly want the support of small businesses. I scanned my red book for indications of what reliefs might add up to between three and four billion and I could not come up with very many. The Conservative party’s Executive Summary promises that 'reduction of complex reliefs' would pay for it. Abolishing the Annual Investment Allowance would be a good bet but this would only raise around £1.5 billion – it is interesting to see however that this cost has risen from the original predictions in 2007 of around £800 million. Well AIA would go a long way towards the cost if you also consider the impact on tax credits – so that would be my first choice. Beyond that, abolishing indexation allowance for companies (I am surprised that it has survived this long – just rebase and be done with it!) would be a sensible option but it is impossible to cost it on current published figures. Further study of the Tory party’s plans indicates that I may be on the right track – page 17 indicates that a 'reduction in capital allowances' would be implemented, as well as “scrapping complex reliefs introduced by Gordon Brown”... so not indexation then. So a few ideas there of what might or might not work, but are there any other tax commitments already made? A quick review of the executive summary of the document Reconstruction – plan for a strong economy published by the Conservative party reveals one other significant promise – increasing the stamp duty land tax threshold to £250,000 to support first time buyers. It also re-iterates the promise made some time ago to raise the IHT threshold to £1 million, which would be a significant cost. It certainly offers food for thought; if we do get a change in government at some point next year then it is likely we will see quite a number of major tax changes, as well as a promise to commence a programme of radical simplification of tax and to change the way complex tax law is made. I await developments with interest!David Cameron reveals all
So what tax promises did Mr Cameron commit to? During his interview he stated that the main rate of corporation tax would be immediately reduced to 25%, which would be funded by “abolishing some reliefs”. He also touched on the Conservative party’s plan to give an NIC holiday as a job creation scheme. Clearly a Budget would have to cover many other areas of both expenditure and taxation, and my recollection of the precise policy regarding NIC was dim so I did a bit of research to wonder what the future might hold under a new government – if that is the will of the electorate.
Casting my eye over the Conservative party plans for the economy, it is not clear how this would be funded directly from the tax system, and indeed the cost is quite difficult to establish. Reducing the rate from 30% to 28% was costed in 2007 at around £2.8 billion on an indexed base, which was paid for by the reduction of capital allowances from 25% to 20%. Reducing this further would probably cost around £4 billion in a good year – not at present as corporation tax receipts are negligible, but clearly the cost would rise as the economy recovers.
Monday, 23 November 2009
Posted by RebeccaBenneyworth in Tax on Mon, 23/11/2009 - 08:29
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