The website gov.uk tells us that “the Chancellor of the Exchequer is the government’s chief financial minister and as such is responsible for growing the UK economy, raising revenue through taxation or borrowing and for controlling public spending.”
Before I get going, this is not meant as a politicised analysis, more an assessment of the likely outcomes of Ms Reeve’s major tax changes announced in the 2024 Budget. The requirement for “…raising revenue through taxation…” to the ‘person on the street’ is likely to mean they would expect to see more coins in the Government’s coffers following any change to our tax legislation. The how is unimportant, whether that be an increase in a tax rate, taxing new (previously untaxed) revenue streams, or introducing new tax reliefs or incentives designed to increase investment and ultimately generate more capital spend and ultimately, employment.
An obvious point you might say, but not necessarily the case.
With the above in mind, let’s consider the likelihood of any of the major tax reforms our Chancellor introduced last October generating substantial additional tax revenue for the Exchequer.
- A 1.2% increase in employers NICs and accelerating the level at which employers NICs become payable
The immediate market response to this announcement has been a huge reduction in recruitment across all sectors, announcements from major employers regarding reduced hiring, recruitment and pay freezes and the scaling back of investment projects. There was a collective ‘gasp’ across the business community when this measure was introduced as employers witnessed the immediate impact to their bottom line and the knock-on effects to their growth prospects.
- Raising Capital Gains Tax from 20-24% and increasing what was once ‘Entrepreneur’s Relief’ from 10% to 14% and ultimately 18%, twinned with the imposition of Inheritance Tax on the transfer of family company shares and farming businesses
I combine these two measures as they’re intimately linked. The immediate reaction from our client base of privately-owned business was a resounding “what’s the point in even starting or growing a business and creating employment if I can’t pass my business on to my family without passing on a huge tax bill to the next generation?”. What we’re seeing, quite sadly, are business owners and up and coming entrepreneurs looking to get out of the UK and start new businesses in countries with more favourable tax environments for start-ups. I would genuinely question whether these IHT changes were thought through. As a basic and perhaps obvious point, where does the Chancellor expect second or third generations to find the money to foot the IHT bill when shares are passed to them on death? The answer in most cases will be a fire sale of the business and the end of family business.
- VAT on Private School fees and the removal of business rates charitable relief
We are now a global outlier in taxing the provision of education. I’m seeing daily reports of independent schools closing due to these measures. Whatever your political persuasion, the policy will clearly only have one outcome: more children attending state schools and in turn, the requirement for more teachers and additional resources. Whilst I’m not a betting man, I would wager that it will be proven that this policy will raise no additional tax revenue and will in fact cost the taxpayer more.
Unfortunately, what I believe we are seeing across not only taxation, but equally across other areas of legislation, is an increasing party politicisation of such measures.
Whilst perhaps a naive view of the world, I believe that tax measures should be apolitical and solely changed or introduced to generate increased revenue for the UK population and then spent wisely by our democratically elected leaders. Time will certainly soon tell whether any of the Chancellor’s measures genuinely increased the UK’s tax take, or perhaps had the opposite effect.
