Gordon said it himself: “This is a tax neutral budget.” So the question then is this: if it’s tax neutral how can the chancellor’s 11th budget be seen as a tax give away?
Pity the poor soul, who in the company of BBC journalists, punched the air with delight at the news of the change in the higher rate of income tax, for when he examined the small print, he would have discovered that the changes in NIS all but balanced out the gains from the upping the higher tax band by £5,000.
The chancellor stunned opposition parties and the unfortunate commentators, who were reporting live, with his theatrical announcement of a reduction of the main income tax band by 2p in the pound. But in the cold analysis that followed, it was realised that the abolishment of the 10p rate made this only a marginal benefit for most.
Superficially, of course, the badly paid were made worse off by the abolishment of the 10p rate, but then tax credits and child benefits were improved. So what our Gordon really did was tinker; change this one way, and change that the other.
The three tier tax system is being replaced with a two tier system, which is good because it makes things simpler. It was Gordon who introduced the 10p rate, and was criticised at the time for adding an unnecessary complication. Perhaps for anyone else the about turn and move to abolish his clever idea in favour of a simpler system would have caused embarrassment.
But, for Gordon, things are never that simple. The tax credit system has a laudable objective, and is certainly - in theory - a distributive tax that hands money to the poor at a time when the rich are getting richer. But in practice it’s fraught with complexity. And for the millions who were overpaid benefit, and then found themselves having to repay it, plunging them into debt they incurred though no fault of their own, perhaps the credits were a mixed blessing .
Business will celebrate the change in corporation tax, which is being lowered from 30 to 28p, but others were quick to point out that capital allowances for investments in plant and machinery has been reduced. David Woodward, head of capital allowances at KPMG, put it this way: “Many businesses especially those in the more capital intensive sectors such as hotel, leisure, retail and others with large property portfolios are potentially going to be worse off.”
As for small businesses, the latest changes seem odd. The chancellor is concerned that some individuals may set up limited companies for the sole intention of saving tax. At the moment, a firm making a profit of less than £300,000 only has to pay out corporation tax at the rate of 19p in the pound. But this is set to change, so that from April 2009 the rate will be 22p.
Ah, says the chancellor, looking at investment, there are all kinds of tax breaks for the smaller business. For example, 100 percent tax relief on the first £50,000 spent on plant and machinery is being introduced.
So, for investment in plant and machinery that’s 100 percent relief for the first £50,000, but a reduction in allowance from 25 to 20 percent, thereafter.
To put it another way, big business sees an improvement in corporation tax, but a worsening in allowance for investment in plant and machinery. For small business, it’s the other way round.
Simon Sweetman, a spokesman from the Federation of Small Businesses, doesn’t like that. He said: “On the face of it, the rise in the small companies rate is very disappointing for our members because it is addressing a problem that I don’t think exists, which is the notion that people incorporate for tax reasons.”
Maybe, by now you are getting the drift. There are winners and losers, but, to a large extent, it’s the same people both ways.
This is not a budget that robs Peter to pay Paul, rather it’s a budget that robs Peter to pay Peter.
As Chris Sanger, head of tax policy at Ernst Young, said: “This is a reshuffling of all the cards in the deck but still leaves all 52 cards in the deck.”
Above all though, if there is one word to sum up the budget it’s this: complexity. Who will be better off and who will be worse off? At the time of writing, the accountants still didn’t seem to know.
Mr Brown was bowing to criticisms that the three tier tax system was too complicated by whittling it down to a two tier system. But he is no more capable of making things simple than Stalin would have been of embracing democracy.
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