Summer Budget: Reflection
A bold, brave statement on the right path
George Osborne surprised most of us by going for it, raising a lot of tax without actually increasing the main tax rates, giving away some tax benefits to some, and making high earners wonder where on earth to put their money now that pensions and buy-to-let are less attractive.
A 30 year old hard-working employee earning £25k a year with 2 small children aged 3 and 4, where all left-over earnings are being spent on the family home and saving in an ISA, will be better off.
A senior executive in their late 50s on £200k a year, with 2 highly mortgaged buy to lets, putting £50k into their pension each year will be worse off. A profitable small company with a highly skilled well paid workforce is going to be better off; a company employing a lot of school leavers could be better or worse off overall.
Small company owners used to extracting a dividend rather than taking a salary out of their company are likely to be worse off. For the sole trader farmer with a number of employees, yesterday’s commitment to extend farmers’ averaging and for the Annual Investment Allowance to have a degree of permanence at £200k are both welcome; however any extra wage bill as a result of the Living Wage and the reform of Tax Credits could be detrimental.
There are so many moving parts coming out of yesterday’s plethora of announcements, that it was easy for most of us to nod in acceptance of one of Mr Osborne’s announcements one minute, then shake our head the next.
The hard fact is though, that we live in a country that has been running a huge deficit and not reducing this as fast as other advanced economies. Whilst tax revenues are currently running higher than expected and the number of jobs created is improved, what Mr Osborne wants to encourage is more jobs to further boost the economy.
The shortage of housing is believed to be partly caused by too many of us who can afford it owning more than one property. Buy-to-let can be an attractive business proposition on a post-tax basis.
This took a blow yesterday, with the loss of higher and additional rate tax relief for interest on borrowings and the removal of tax allowance for wear and tear. On the positive side, there will be a phasing in of these provisions and it will give the property market time to react.
Yesterday’s welfare reforms were radical and will hurt many families. Those who can work, should work. That’s the theory anyway and with the changes coming in pretty quickly, we hope that Mr Osborne’s dreams become reality and that his Employment Allowance and other measures to incentivise businesses to increase jobs will deliver.
Overall, it was a bold, brave Budget that puts the country on the right path.