Whatever economists may be saying, and irrespective of how much the country is in debt (frightening figures), tax cuts are fast coming down the slipway. As certain as death... and taxes.
We will be told precisely what is on the slipway on March 6 when Jeremy Hunt, chancellor of the exchequer, presents the 2024 Budget – although I imagine most of the details will be leaked in advance.
Treasury officials are as leaky as Thames Water, where nearly a quarter of water supplies are lost through leaks (bet you didn’t know that).
In addition, there may well be another batch of cuts ahead of a general election as the government makes one final stab at persuading (bribing) the nation into giving the Tories another five years at the country’s helm.
I wouldn’t bet on this strategy working, although strange things do happen in politics. I remember 1992 when John Major defied the polls to win a fourth consecutive general election for the Conservatives, ending Neil Kinnock’s hope of ever becoming prime minister.
But Rishi Sunak, or whoever leads the Conservatives into the next election, has a truly Herculean task in overhauling Sir Keir Starmer. If they do, it will be as close as we will ever get to a modern-day miracle.
Of course, all this tax noise is about politics, not (necessarily) the greater good of the country.So, what tax-cutting tricks does Hunt have up his sleeve? A whole host I would say, given he has been responsible for raining down on the nation’s head a hailstorm of tax rises – either explicit or implicit through the freezing of a whole mishmash of allowances.
I would assume income tax cuts will be a priority. They seem to resonate most with the public.
If not income tax cuts, then maybe further reductions in national insurance rates (income tax in disguise) to add to the recent cut from 12 to 10 per cent for some 27mn workers, and smaller decreases for the self-employed.
I am also sure that a reduction in inheritance tax (even its abolition) will be a priority. Most Conservatives are vehemently opposed to the tax on a point of principle – it is a form of double taxation – and while the Treasury’s take from this tax continues to rise (£5.7bn in the last nine months of last year), the revenue lost from its abolition will not break its proverbial bank.
I know that most advisers believe IHT reform should not be a government priority because it’s a tax that most estates don’t get caught in – and lots of people can mitigate through careful financial planning.
My take on this (and I know I will get castigated for saying it) is that advisers calling for the ending of IHT is akin to turkeys voting for Christmas. In effect, they would be doing themselves out of a job.
Alongside any tax cuts, the government must unfreeze income tax thresholds. It is simply unacceptable that many pensioners, heavily dependent upon the state pension and a scratch of a private pension, are now being drawn into tax because of the freezing of the personal allowance at £12,570 – an amount it has been at since the tax year ending April 5 2021.
It is also scandalous that millions of people have been drawn into 40 per cent higher rate tax because of fiscal drag.
Experts forecast that one in five taxpayers will be paying income tax at 40 per cent or above by 2027. To put this into some kind of perspective, the equivalent figure for the tax year ending April 5 2023 was 11 per cent.
In terms of fairness, it would make great sense to shave insurance premium tax (IPT).
It is invidious that because of profit rebuilding by insurers, premiums for car, home and pet cover are reaching for the stratosphere, resulting in an IPT bonanza for the Treasury. It is time for the standard rate of 12 per cent to be given a haircut.
I imagine that any changes to the taxation of dividends and capital gains (and permitted tax-free annual allowances) will be off Hunt’s radar.
It is scandalous that millions of people have been drawn into 40 per cent higher rate tax because of fiscal drag. The £20,000 annual Isa allowance is unlikely to be touched, although there may be some simplification of the underlying regime, plus maybe an extra allowance for those prepared to back the faltering UK stock market.
Changes to tax relief on pension contributions will also be a no-go, although I imagine that Starmer will have them on his to-do list if (when) he wins the general election.
Of course, all this tax noise is about politics, not (necessarily) the greater good of the country.
As the Institute for Fiscal Studies reminded us recently, whatever rabbits Hunt pulls out of his hat in the Budget, they will probably have to be pushed back in pretty quickly after the general election (whoever then has control of the hat).
The next government, it said, faces the worst debt challenge since the 1950s. Any tax cuts now, it warned, would simply increase the risk of future tax rises further down the line, or vicious spending cuts.
The only bright spot for financial advisers is that they (you) will be working overtime in the weeks and months ahead, busily advising clients on how to protect their finances and wealth from a tax-heavy regime, both pre and post-election.
Jeff Prestridge is group wealth and personal finance editor at DMGT
