Following on from the blog by my colleague Ses Memhi in January, he highlighted the importance of the Spring Budget and the need for the Conservatives to get it right ahead of a looming potential election anticipated later this year. Now that the budget has been and gone, given that most of the budget announcements were leaked in the lead up (and those announced on the day were not earth shattering for most taxpayers), it does make me wonder whether they’ve hit the right note or were playing it safe? More importantly, the cynic in me wonders whether there is more implied by the lack of change than by change itself. In the words of Ronan Keating, maybe they do say it best when they say nothing at all? The silence instead, actually speaks volumes. The ultimate double bluff.
The first way in which silence is particularly palpable is in respect of the lack of change to tax thresholds across the board, with the one exception of the VAT registration threshold being increased to £90,000 by a meagre £5,000. There are numerous thresholds across the tax system that have either been frozen, reduced or maintained without increases in line with the consumer price index. For example, the personal allowances and NIC thresholds have been frozen until 2028 (for now). The Capital Gains Tax allowances, Business Asset Disposal Relief lifetime limit and additional rate threshold have been reduced. The nil rate band for inheritance tax has been maintained at £325,000 for nearly 15 years. This is just the tip of the iceberg with many other thresholds remaining unchanged for too long, shout out to the 45p tax-free approved mileage allowance. With rising inflation and increased wages, the value of taxpayers’ income and estates are on the rise with increasing effective tax rates due to the lack of change to the thresholds doubling the blow of the cost-of-living crisis. The impact of these decisions and the resulting ‘stealth tax’ is real and not one that is addressed in any of the successive budgets or the surrounding commentary where the message is often ‘no news is good news.’ More worryingly, this lack of change has crept in over such a long period such that the cumulative effect is easily overlooked. The famous analogy of how the frog being boiled slowly doesn’t jump out of the pan but would jump out of scolding water immediately is very apt.
As a specialist on transaction tax matters, the fear of the abolition of Business Asset Disposal Relief as well as an increase of Capital Gains Tax (CGT) on the sale of shares is often high on the agenda for sellers. Again, these have remained untouched for several consecutive finance bills despite the terror induced by the outcome of the review of CGT commissioned by Rishi Sunak in 2020, where the possibility of an increase of CGT to be in line with income tax rates was real and has since been left floating in the ether. The lack of change but the corresponding threat of change drives behaviour; with many business owners contemplating exits to escape future tax increases. This in turn accelerates the tax revenue received from sales, a win-win for the exchequer. We predict the same outcome in the run up to a general election too, yet another way to demonstrate how loud the silence is.
With the abolition of the Office for Tax Simplification and the commitment from the government to a simple and fair tax system by mandating both HM Treasury and HMRC to prioritise simplification in 2023, there is also the implication that further changes are afoot. However, fairness feels like it has never been further away. The irony is that change is required to achieve both but with no impetus to achieve either to date and continued tinkering around the edges with tax nothings for the many. The current situation does not give the taxpayer or business owners hope. For example, with the latest further cut to NICs there will be a negligible impact of this to the taxpayers’ pocket. This combined with the lack of change to the NIC thresholds and the current rate of inflation is such that even some of the changes announced do not result in a real change, but also lack fairness. Moreover, in the age where the implementation of Making Tax Digital has proven particularly difficult, together with the arrival of Artificial Intelligence both of which are likely to result in further complexities rather than simplification of the tax system, at least in the short term. The road to simplification feels longer than ever before! There will come a point where the tax system is paralysed by the lack of change if the current approach continues, with economic and technological growth leaving a gulf that leaves the tax system so far behind that the gap is too big to fill.
More profound announcements were included in last year’s Tax Administration and Maintenance Day than the budget itself, such as the consultation on the taxation of Employee Ownership Trusts (EOTs) and modernisation of the stamp duty on shares. EOTs have gained popularity over the last few years and in particular since the Business Asset Disposal Relief limit was reduced, with the ability to sell a controlling interest without a charge to tax open to abuse. However, with the subsequent silence on legislative changes to these in the budget, it does add further weight that the lack of change is deafening. Will more be able to be gleaned from the future direction of tax policy of the Conservatives in this years’ Tax Administration and Maintenance Day which is looming on 18 April (and is less closely followed and surrounded by controversy than the budget), or will the empty possibilities continue, particularly ahead of the election? Watch this space…
One thing is for sure, I’m a firm believer that what we hear when they don’t say a thing, may be more telling than what they do say. A potential change in government at the next general election will guarantee changes in tax policy that will be a shock to the system after consistent years of loud silence.
