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We interrupt your summer holiday to
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bring you news of fresh taxes on
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property, pensions, and inheritance. God
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help us all. Welcome back to the week in
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business with me, Christian May.
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We know the Treasury's favorite summer
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holiday activity, kite flying. Release
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policy ideas up into the air and see how
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the wind takes them. In recent days,
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we've jumped on reports of new
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inheritance tax levies, new property
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taxes, and a new raid on pension pots.
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It's a miserable case of deja vu, I'm
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afraid, with the government having
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learned absolutely nothing from last
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summer's speculation of tax hikes ahead
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of last autumn's budget. Now, we're back
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in the same game. But the stakes are far
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higher. The government faces a
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disastrous situation. Unable to cut
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spending because Labour MPs simply won't
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allow it and unable to stimulate
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meaningful economic growth. The only
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lever they have to pull in order to
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balance their books is the one marked
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tax hikes. Of course, they pulled this
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lever last year and hit businesses with
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20 billion pounds of additional tax.
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Something the chancellor has long since
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described as a one-off, vowing there
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will never be another budget like that.
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Over the course of the following year,
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growth spluttered and stalled, borrowing
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climbed, and efforts to make even modest
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savings in public expenditure
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disintegrated. On contact with Labor MPs
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who have decided that they didn't come
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to Westminster to cut spending. So,
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depending upon which economic forecast
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or piece of analysis takes your fancy,
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you can bet on fresh tax rises this
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autumn of between 12 billion and 50
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billion quit. And 12 billion only sounds
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small when you put it next to 50
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billion. It's still a painful squeeze
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and most economists anticipate at least
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another 20 billion pound raid from the
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chancellor and that's just to keep the
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lights on until she has to do it again
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and again. The government's urgent need
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for cash is leading it into some very
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dark places. Let's start with a look at
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property taxes. Almost certainly said to
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be a large part of the chancellor's
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budget. The proposed plan is to finally
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grab council tax and stamp duty by the
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horns and reform them. Now, in normal
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times, this could be cause for
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celebration because council tax is
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woefully outdated, while stamp duty is a
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nasty, distorting, and damaging tax on
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transactions. But my concern is that the
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government's need for cash is far
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greater than its appetite for considered
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reform. There is no scenario in which a
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new property tax regime instigated by
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this government would yield less revenue
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than the current arrangements. Easing
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the burden on taxpayers is not the
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priority here, however they dress it up.
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Making major changes to council tax in
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particular will take time, but changes
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to the taxation of property at the point
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of purchase or sale can be announced in
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a budget on a Wednesday and come into
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effect at midnight. So, will Rachel
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Reeves resist the urge to squeeze some
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cash out of the housing market, even as
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she embarks on wider reform? Enter the
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mansion tax in one form or another.
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Ideas being discussed include an annual
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levy payable by those who live in a
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house worth more than half a million
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quid, and most alarmingly, the
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imposition of capital gains tax on the
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sale of primary residences worth more
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than 1.5 million. Currently, nobody pays
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tax on the increase in the value of
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their house once they sell it, unless
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it's your second or third home. Fair
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enough. To impose it on the sale of a
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sole residence, the family home, would
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be a monstrous act of confiscation with
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disastrous consequences for particular
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parts of the housing market, not least
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those looking to downsize. As the head
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of the building society's association
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said yesterday, if owners of larger
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homes who might otherwise downsize are
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discouraged from moving, it will make it
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harder for others to move up the
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property ladder. Even harder, I suspect
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they could have said, "My arguments
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against this particular proposal are
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economic and moral. It stinks." And we
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should brace for a further squeeze on
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inheritance tax and gifting. Currently,
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you can give a total of three grand a
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year without it being subject to
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inheritance tax. And Reeves is looking
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at capping the amount you give like this
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over a lifetime. That £3,000 limit was
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set 40 years ago. So if anything, it
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should be raised to a far higher amount.
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And there would be economic benefits of
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doing so as money would pass between
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generations, helping people in their 30s
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and 40s and stimulating the economy. But
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Rachel needs the money. Now this time
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last year, the Treasury allowed
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speculation to run riot that the
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tax-free pension lump sum would be
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slashed at the budget. Currently, it's
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possible upon retirement to take up to
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25% of your accumulated pension pot as a
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lump sum up to a cap of about £270,000
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without paying tax on it. Now, ahead of
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last year's budget, the government
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refused to rule out slashing that cap.
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And as a consequence, thousands of
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people rushed to take money out of their
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pension before a change in the rules.
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And in the end, Reeves left pensions
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alone. But can she afford to do so this
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year? Either way, the same damaging
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speculation will force people to act.
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There is a school of thought that all
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these tax rumors are designed precisely
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to spur a flurry of financial activity.
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Quickly sell the house. Quickly pass
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money down to the kids. Quickly pull
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some pension money out. But I don't
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credit the government with this kind of
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creative thinking. And if it were true,
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it would be a dire indictment of the
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mess they've made. Pretty desperate
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stuff. So given the scale of the black
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hole the government now faces, it's fair
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to assume that all of these areas,
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property, pensions, and inheritance will
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be taxed again and in new ways in a few
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months time, not least because Star and
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Reeves have ruled out touching the big
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three taxes of income tax, national
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insurance, and VAT. That's a political
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choice and they're sticking to it,
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leaving them with very few economic
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choices and leaving us facing a fresh
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round of tax squeezes. It is, I'm
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afraid, a total mess and it's going to
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get worse. My advice, stay on holiday.
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And while you're there, you can stay up
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to date and in the know with the city
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app and on cityam.com.
