Category Archives: Budget

The Scottish Draft Budget 2018/19 – a new tax structure?

Scottish money

A “fairer and more progressive” tax system?

The Scottish draft Budget on 14 December 2017 was eagerly awaited following draft proposals from the Scottish Government for reforming the structure of income tax. Derek Mackay, the Scottish Cabinet Secretary for Finance and the Constitution, did not disappoint, revealing a revised income tax framework that he said would “make Scotland’s tax system fairer and more progressive”.

Income tax

Mr Mackay has complicated the tax structure by creating two new rates of tax – a starter rate at 19% and an intermediate rate at 21%. He has added 1% to the current 40% higher and the 45% additional rates. The proposed new income tax bands above any available personal allowance for 2018/19 are as follows:

Taxable Income

£

Band Name Tax Rate

%

0-2,000 Starter 19
2,001-12,150 Basic 20
12,151-32,423 Intermediate 21
32,424-150,000* Higher 41
Over 150,000* Top 46

* Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.

There are various consequences to this new structure.

  • The personal allowance for 2018/19 has been set at £11,850 by Westminster. The Scottish basic rate band will run from this level to £24,000 of income – equating to projected median earnings.
  • The higher rate (41%) threshold for 2018/19 will be £44,273, compared with a figure for the rest of the UK of £46,350 (and a 40% higher rate).
  • Nobody in Scotland earning less than £33,000 will pay more income tax in 2018/19 than in 2017/18, according to Mr Mackay. That covers some 70% of Scottish taxpayers.
  • The basic rate remains at 20%, which should alleviate the concerns of pension providers about the operation of relief at source. However, there will be a band of intermediate rate taxpayers who will be able to reclaim an extra 1% relief on their pension contributions – in theory at least.

Land and Building Transaction Tax

A change to Land and Building Transaction tax (LBTT – the Scottish equivalent of SDLT) was made to help first time buyers, as was widely expected after last month’s Westminster Budget. However, Mr Mackay was less generous than Mr Hammond and only increased the nil rate slice of LBTT by £30,000 to £175,000 for first time buyers – giving them a maximum saving of £600 – starting in 2018/19. There does not appear to be a cap on property value, unlike Mr Hammond’s version.

It is important to bear in mind that because the Scottish National Party does not have a majority, the Budget only represents draft proposals and that these may change before becoming law (which is what happened for 2017/18).

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Taxbriefs Chancellors 4 – John Major 1989-90

Chancellor-John-Major-wit-007

Margaret Thatcher’s third Chancellor, John Major replaced Nigel Lawson after he resigned in October 1989. Formerly a banker with Standard Chartered, he became an MP from the 1979 election.

Major had previously been Foreign Secretary, a post he was promoted to only in July 1989. His term as Chancellor lasted just 13 months, after which he became Prime Minister following Mrs Thatcher’s loss of her party’s leadership in November 1990. .

His only Budget in 1990 was set against the backwash of the ‘Lawson boom’. Inflation at the time was 8.1% (RPI), on its way to a peak of 10.9% in September 1990. Bank Base rate was 15%, although it was cut to 14% shortly before Major changed jobs.

In the Budget he announced:

  • That he had “decided to abolish stamp duty on securities late in 1991-92 to coincide as closely as I can manage with the introduction of paperless trading.” Stamp duty reserve tax was also to be abolished at the same time. Even though the Finance Act 1990 legislated for both to disappear, eventually the new paperless system (TAURUS) was shelved and the necessary Treasury Order to name the ‘abolition day’ was never made;
  • Increased fuel duty by 2p a litre on petrol and 2.4p on diesel.;
  • Granted tax relief for one-off charitable gifts of £600 and above – the start of what became gift aid;
  • Scrapped the composite rate of tax which applied to bank and building society interest and meant that all interest was paid net of a notional (and non-reclaimable) basic rate tax . Under composite rate tax (which was set at below basic rate) non-taxpaying depositors effectively subsidised their tax paying counterparts;
  • Raised the Personal Equity Plan (PEP) contribution limit by 25% to £6,000, of which up to £3,000 could be in unit trusts or investment trusts;
  • Launched the Tax Exempt Special Savings Account (TESSA), a five year deposit-based tax-free savings scheme with a maximum overall investment of £9,000, of which £3,000 could be invested in year 1 and up to £1,800 a year thereafter. The aim was to increase the savings ratio.

In his final full month as Chancellor, John Major and his successor as Foreign Secretary, Douglas Hurd, persuaded Margaret Thatcher to support entry to the Exchange Rate Mechanism (ERM), a move which she had resisted for many years. The conflict had been one of the causes of Nigel Lawson’s resignation and was later to lead to Major’s successor, Norman Lamont, suffering ejection from the ERM on Black Wednesday in September 1992.

What he said

“I don’t have a shred of regret about entering the exchange-rate mechanism.”

Budget Soundtrack

The mood was grim during during John Major’s short tenure at the Treasury. Amid warnings of recession, the country witnessed the ‘Poll Tax Riots’, an ambulance workers’ strike, the Iraqi hostage crisis and an upswing in IRA attacks. On the upside Manchester United won a replayed FA Cup to win a total of seven titles, women began to serve on operational warships for the first time and summer temperatures peaked in August at 37C in Cheltenham.

March 1990 ‘Dub Be Good to Me’ Beats International

 

Taxbriefs Chancellors 3 – Nigel Lawson Part 2: 1987-89

18336

Nigel Lawson’s last three Budgets heralded what became known as the ‘Lawson boom’. The effects were short-lived, leading again to inflationary pressures and high unemployment.

The 1987 pre-election Budget saw another 2% cut from basic rate tax and the introduction of personal pension scheme legislation, to take effect from 1988. It also marked the first ever freeze in Child Benefit.

  • The 1988 Budget was probably Lawson’s most memorable, despite the gathering inflation and trade deficit clouds:
    • Basic rate income tax was cut to 25% and the top rate of income tax was cut from 60% to 40%, leaving just two tax rates;
    • Independent taxation of married couples was announced, to take effect from 1990/91;
    • A new restriction on mortgage interest relief for jointly owned property was introduced. The start date was deferred until 1 August 1988, prompting a last minute joint-buying frenzy;
    • Tax relief for non-charitable covenants was withdrawn and for maintenance payments reduced to the difference between the married couple’s allowance and the single personal allowance;
    • The Business Expansion Scheme was expanded to include property let on shorthold tenancies, a move that created a boom in student accommodation and repossession-based schemes;
    • Car benefit tax scales were doubled;
    • Capital gains rebasing to 1982 was introduced and all gains above a reduced annual allowance became taxable as the top slice of income (i.e. at up to 40% rather than the previous flat 30% rate).
  • Lawson’s final (1989) Budget was much duller in comparison, against a backdrop of rising inflation and interest rates of 13%, destined to reach 15% later in the year. It saw a further sharp rise in car benefit tax and a clampdown on life policies held by companies.

Nigel Lawson resigned in October 1989 (shortly after interest rates reached 15%) over whether or not the UK should join the Exchange Rate Mechanism – Lawson was in favour, but Margaret Thatcher and her favoured economic adviser, Alan Walters were not. The UK eventually joined the ERM in 1990, but then crashed out on Black Wednesday, just under two years later.

A former Secretary of State for Energy, Nigel Lawson is now a leading climate change sceptic and recently became chairman of the Vote Leave group, campaigning for the UK’s exit from the European Union.

What he said

“If I really believed in Friedman’s economic theory, then I’d be quite satisfied to spend the rest of my life with a garden hose shoved down my throat, being filled with custard by representatives of the people of China.” (Speech to the Conservative Party Conference, October, 1988).

Budget soundtracks

March 1987 Boy George ‘Everything I Own’
March 1988 Kylie Minogue ‘I Should Be So Lucky’
March 1989 Jason Donovan ‘Too Many Broken Hearts’

 

Taxbriefs Chancellors – 2 Geoffrey Howe 1979 – 1983

Geoffrey Howe

Geoffrey Howe served as Margaret Thatcher’s first Chancellor from 1979 to 1983 and then as foreign secretary, leader of the House and deputy prime minister.

In November 1990, after 11 years of loyal government service, the ostensibly mild-mannered and equitable Howe unexpectedly provided one of the most dramatic of parliamentary scenes with his famous resignation speech. With Mrs Thatcher’s premiership called into question, the doors were flung open to a leadership challenge which precipitated her downfall within weeks.

After his resignation, Howe was apparently sent little bags from constituencies containing ‘30 pieces of silver’, which he donated to Guide Dogs for the Blind.

What he did

  • In his first Budget in 1979, Howe raised VAT from 12.5% (on luxury items) and 8% (on anything else VATable) to a flat 15%. At the same time he cut the basic rate of income tax from 33% to 30% and the top rate from 83% to 60% on earned income. Base rate – then in the Chancellor’s control – was raised from 12% to 14%.
  • The 1979 Budget also marked a major relaxation in exchange controls which were finally withdrawn in October after a 40-year run. As well as reducing the cost of overseas investment, abolition meant that the restrictions on foreign currency for holidays abroad disappeared.
  • His most memorable Budget was 1981 against a dire economic backdrop – inflation nudging 20%, the largest drop in industrial output since 1920, borrowing soaring and 2.5 million unemployed. Geoffrey Howe raised taxes by freezing allowances (fiscal drag – a familiar ploy ever since), abolished Labour’s 25% lower rate band and introduced a windfall tax on bank profits and North Sea oil (déjà vu). The aim was first and foremost to crack down on inflation. Cuts to public spending and increased duty on petrol contributed to a plummet in poll ratings.
  • The 1981 Budget prompted a letter warning of dire consequences to The Times, signed by 364 economists, including Mervyn King, who was later to become Governor of the Bank of England.
  • Geoffrey Howe’s last Budget in 1983 was a pre-election affair, with substantial real terms increases in tax allowances.

Some see echoes of Geoffrey Howe in George Osborne – notably Osborne’s VAT-hiking first Budget and Howe’s 1981 dose of bitter medicine.

Geoffrey Howe died in October 2015 at 88, the same age, and very shortly after, his old adversary, Denis Healey.

What he said

“It’s rather like sending our opening batsmen to the crease only for them to find that before the first ball is bowled, their bats have been broken by the team captain… The time has come for others to consider their own response to the tragic conflict of loyalties, with which I have myself wrestled for perhaps too long.” 1990 resignation speech in the House of Commons

“Inflation is a great moral evil. Nations which lose confidence in their currency lose confidence in themselves.” From 1982

Budget soundtracks

An eclectic mix of sounds accompanied Geoffrey Howe’s Budgets in the early 1980s, along with flamboyant haircuts and fashions. The nation’s TVs were also able to tune in to a fourth channel from November 1982 when Channel 4 went on air with Countdown.

June 1979 Anita Ward ‘Ring my Bell’
March 1980 The Jam ‘Going Underground’
March 1981 Roxy Music ‘Jealous Guy’
March 1982 Tight Fit ‘The Lion Sleeps Tonight’
March 1983 Michael Jackson ‘Billie Jean’

 

Taxbriefs Chancellors – 1 Denis Healey 1974-79

Denis Healey with the Budget Box, 1977

Denis Healey with the Budget Box, 1977

Taxbriefs first produced a Budget Summary in 1975 when the late Denis Healey presented his fourth Budget in his second year in the job. Founding Director Danby Bloch remembers stapling these unique documents together with his business partner George Stainton before posting them to advisers and accountants in envelopes.

We thought it might be fun and instructive to look back over the Chancellors and Budgets that we’ve seen come and go. So let’s start with Healey, famous above all for his eyebrows and uncensored wit.

When?

Denis Healey was Chancellor from 1974 to 1979 in James Callaghan’s Labour government. Inflation was high world-wide, the price of oil rocketing and he inherited a deep balance of payments deficit. Over the five years he delivered nine Budgets and mini-Budgets.

What did he do?

  • Introduced capital transfer tax (CTT) to replace estate duty in Finance Act 1975 (from 1974 generally).
  • Ended the ‘interest free loan’ loophole and introduced the 5% rule on investment bonds.
  • Started development land tax.
  • Introduced clawback of life assurance premium relief to counter abuse.
  • Introduced 98% income tax – 83% + 15% investment income surcharge.
  • Slashed VAT from 25% to 12.5% in April 1976.
  • Famously had to accept a bail out IMF loan of the end of 1976, with resulting cuts in public expenditure. In the lead up to agreeing the loan, interest rates rose to an unprecedented 15%. On his way to the IMF Healey was forced to turn back at Heathrow to go to the Labour Party conference and defend his policies in a three-minute speech from the floor as a delegate. He later characterised those months as “the worst of my life.” But a hard and unpopular road meant that by the end of 1978 the IMF loan had been repaid, what Healey dubbed “Sod-Off Day”.
  • Presented three Budgets in 1974 – March, July and November.
  • First Budget speech to be broadcast in March 1978 (in sound only).

Ever controversial, in the wake of Denis Healey’s death at 98 in October 2015, you could either read that he was the worst Chancellor of the Exchequer or alternatively one of the most consequential.

What did he say?

“There are going to be howls of anguish from the 80,000 people who are rich enough to pay over 75% tax on the last slice of their income” – Speech at Labour Party conference, 1973.

“… like being savaged by a dead sheep” – of an attack on him by Geoffrey Howe

“sado-monetarism” – on Mrs Thatcher’s devotion to the economic doctrine of Milton Friedman

“Healey and Benn are like Torvill and Dean – I can’t get the bugger off my back.” Campaigning for Tony Benn in 1984

Budget soundtracks

Denis Healey spoke Italian and loved opera. He may or may not have paid attention to what was in the charts for his nine Budgets. His last, in April 1979, just missed coinciding with Gloria Gaynor’s only UK No 1 ‘I will survive’:

March 1974 Paper Lace ‘Billy Don’t be A Hero’
July 1974 Charles Aznevour ‘She’
November 1974 David Essex ‘Gonna Make You a Star’
March 1975 Bay City Rollers with ‘Bye, Bye Baby’
April 1976 Brotherhood of Man ‘Save Your Kisses for Me’
December 1976 Showaddywaddy ‘Under the Moon of Love’
March 1977 Manhattan Transfer ‘Chanson ‘D’Amour’
March 1978 Kate Bush ‘Wuthering Heights’
April 1979 Art Garfunkel ‘Bright Eyes’

 

Date set for Budget 2016

The Chancellor has set Wednesday 16 March 2016 as the date for the next Budget. This will be Mr Osborne’s seventh Budget and the second all-Tory set of announcements of the new Parliament.

What can we expect to hear in March?

As a pre-Christmas taster, the Chancellor unveiled details today of a new secondary annuities market to be introduced in April 2017, which will include a U-turn on plans to block providers from buying back guaranteed income streams from existing customers.

In addition, it’s likely there will be a heavy focus on taxation and pensions, as well as the inheritance tax residence nil rate band, capital gains tax changes and possible reform of self-employed NICs.

The following topics are also tipped to make an appearance:

  • New rules on replacement capital within EIS and VCT
  • A possible review of salary sacrifice
  • A reworking of inheritable ISAs to retain tax advantage during administration
  • Further details on the apprenticeship levy

This is just a snapshot of what we think the Chancellor may talk about next March but of course Mr Osborne is prone to delivering the odd surprise so watch this space…

Our Budget 2016 service is now available – get in touch to discuss your requirements.

Post-Budget dust settles

Thank you to everyone who completed our Budget survey in the last few weeks. It’s been a busy year for the government with two Budgets and a general election… and it was also a busy few months for us at Taxbriefs producing two suites of Budget products, including the Budget summaries and tax tables.

As always, we’re keen to hear what you think of our products and service, so August seemed like a good time to ask clients to participate in a survey covering both Budgets. £50 Amazon vouchers are already winging their way to two lucky winners. Feedback is an essential part of our quality control process and helps us to ensure we keep delivering the best to our clients.

One of the most interesting things we discovered was that print is still way up there in terms of popularity, despite a general trend towards digital for marketing and communications. In fact, while more firms are mixing it up with both print and digital, print was the most popular of all our formats! We were also pleased to discover that overall, satisfaction was really high both with delivery of service and quality of products and services.

This year’s round of Budgets may be done and dusted, but we don’t like to rest on our collective laurels for long. We’re therefore already gearing up for the Autumn Statement… and then it’s all systems go for the 2016 Budget. Watch this space.