Budget Monopoly

Oh dear, it is starting to look as though the ‘adults in the room’ have not given as much thought to how they will finance their grand plans as we would have expected. It is not uncommon for rumours to abound before a Budget and often these are leaked to get a feel for how they will be received. This time however we seem to be getting rumours and rebuttals on a nearly daily basis.

I wonder if the Chancellor got out her box of Downing Street Monopoly (paid with her own money) to try and get some inspiration.

The first card she drew from the Community Chest said ‘restrict the amount of tax relief that is given on individual pension contributions’. Yippee! This costs billions and seems to be an easy win.

However when this was put to the Mandarins in Whitehall they pointed out this would affect a LOT of government employees (and union members!), and as they are in final salary schemes it would result in them having to physically pay more tax negating the recent pay rises they were given. So this has been dropped with the reported reason being it would be ‘too difficult to administer...’

So back to the Community Chest and the next card said ‘Increase the rate of CGT to 39%’ (I assume that this figure was chosen as it sounded less than 40%). Perfect - this will only affect capitalists and those with money! However, after this was leaked, the next day the Treasury announced the Chancellor was not going to increase the rate to that amount. Given their own research suggests that anything more than a 5% increase will prove counterproductive this card appears to have been a red herring.

The next card said ‘increase VAT’ but that had to immediately go back into the pile as this had been ruled out. She also had to put the ‘increase Income Tax’ card back as well, no doubt wishing she hadn’t been so rash as to promise not to touch both taxes in the manifesto. A 1p increase in the rate of VAT would raise £8.8bn and to Income Tax would result in £7.8bn according to the Government’s own statistics department. Oh well, moving on.

With the pile of cards getting smaller and the beads of sweat on her forehead increasing by the minute, the next card said ‘increase the rate of employer National Insurance’. Hurrah! The ‘working person’ isn’t footing the bill for this (a manifesto promise kept!) so mission accomplished! Phew!

This of course is patently false. Any increase in the cost of employing someone incurred by an employer results in two things – either the number of people they employ reduces or the price of their goods and services has to rise to pay for it. Inflationary I would have thought? She has said that one of her aims is to generate growth in the economy (sensible), taxing jobs is not exactly the best way to go about this.

When she hinted at a rise in employer NI at the recent Investment summit it was not exactly met with understanding nods by those in attendance.

The most recent suggestion that has been mooted is that employer pension contributions could be subject to National Insurance (which by the way is 13.8%). This has already being lambasted and if brought in would probably result in either a reduction or a freeze on the amounts paid into an employee’s pension or smaller pay rises in the future.

Given there are already doubts about how much the addition of VAT to school fees is likely to add to the public purse it appears they are only just realising increasing taxes is not as simple as they thought.

There are many moving parts to the tax system and of course they have to be deemed reasonable or people will change their plans/lifestyle to avoid paying them. In fact it is more like Jenga where one wrong decision can bring the whole pile of bricks tumbling to the ground. Let’s hope this does not come to pass and the Monopoly analogy is more apt. We will know for sure if she announces we have all won £50 in a beauty contest but I won’t hold my breath…