Business

Stamp licking budgets

BROUGHT TO BOOK: Chancellor Rishi Sunak during a press conference following the 2021 Budget
Peter McGahan

MOST Budgets are like a stamp-licking competition, especially now that you don’t need to lick them. You build up to the excitement of something happening and hey presto, nothing does.

Whilst last week's Budget delivered reasonably benign information from Rishi Sunak, we have ‘Tax Day’ to follow.

This ‘day’ will create a plan for long-term changes in the government’s tax policies. I know what you are thinking – the Budget should be doing this. This is really about signalling the government’s policies over the coming years. Watch out.

Most experts believe this will include policies on capital gains tax, and environmental levies for example. It is hard not see the UK moving toward policies that make the UK more sustainable and hopefully incentivising green energy innovation.

We’ve already seen the extraordinary out-performance of green energy stocks over the oil majors and incentives away from these companies and on to sustainable energy can only make more sense.

It’s logical to tax carbon and use that to fund/incentivise green energy innovation.

Remember the UK will be hosting the COP 26 (Conference of Parties) international climate talks in Glasgow in November, and all eyes will be on that and their climate and tax plans.

We’ve long given up on what they may or may not do in changes but aligning capital gains tax to income tax has long been on the cards, or at least tightening the exemptions available.

Most of the ‘this is what we are thinking of doing’ is about testing society’s reactions, but a beaten and tired society as we are today, is unlikely to put up much of a fight. Any move toward supporting green sustainable energy won’t be fought.

If we have energy available here, why import from elsewhere?

Headlines from this budget include ‘not much happening’.

Fundamentally, the issues lie around reigniting a battered UK economy that has been clobbered by Brexit build/worries, Brexit realities and Covid-19 – the imperfect storm.

I agree with the Budget. We all need good news, and whilst I know income tax thresholds have been frozen et al, we need to rebuild this economy very quickly.

Over my 34 years, many studies have been created on the subject, and taxing to raise revenue is not as successful as encouraging entrepreneurship and growth. By funnelling and encouraging growth, perhaps the planned taxes of future years may not reach the levels suggested.

In any event, the UK corporation tax at 25 per cent (by 2023) is still the lowest in the G7.

Over taxing home-grown organisations is, and shouldn’t be, the target as we all know. It is the organisations who just don’t feel like paying tax, bless ‘em.

The world’s most corrosive corporate tax havens are all British overseas territories.

Circular economies do not work where hoovers are stuck over economies and suck out its revenue without circulating the tax back through. That is where the real targeting needs to be from a tax point of view.

Headlines of this budget are a freeze to the personal income tax allowance, which hits the tax payer by £8 billion per year; extension to the furlough scheme, extension of business rates and a grant to the high street business.

With inflation at benign levels now, tax freezes are less of an issue, but if the economy moves as they hope – by definition, that is inflationary, so higher interest rates and an increasing gap in your spending power becomes more likely. Fix your mortgage now?

Savings ratios rocketed last year and have been used as the saving grace when we are all allowed out to play. Not necessarily so. That’s a political bowl of jelly to stick to a tree.

Savings ratios dropped from 27 per cent to 16.5 per cent at the end of last year. Where did that go, because it did not create the euphoria they are forecasting.

In reality, people have paid down significant personal debt, which is a good thing

Assistance to the self-employed is welcome, offering to pay 80 per cent of three months average trading profits. They have been hard hit.

Worryingly and poorly thought through is the impact on the lifetime allowance for pensions.

The NHS is already under extreme pressure to find staff and this measure pushes senior doctors to retire earlier to avoid 55 per cent tax charges. Rethink.

:: Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have question on sustainable investing, call Darren McKeever on 028 6863 2692 or email info@wwfp.net or visit https://www.wwfp.net/

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