Paul Short: Reaction to Budget 2018

Why is the Foreign Aid budget sacrosanct? Charity begins at home. If we need more money domestically, as we surely seem to, why don’t we slash the Foreign Aid budget? Several billion freed up for defence, cyber defence and offence, and the police budget, with some left over for the NHS – before we need to look at raising more funds elsewhere.

Personally I tend to be more concerned with the micro level and how the tax announcements affect my clients, who are my constituents. Mr Hammond does not seem to have addressed the income disincentives within a system. Indeed he would appear to have accentuated them, although the devil is always in the detail. Pushing the threshold at which higher rate tax bites up to £50k is wonderful but what is the marginal rate of tax for someone on £50k (with two children and a student loan) who happens to get a windfall bonus of £1k. Prior to this the marginal rate on £50,000 would be 32% (Income Tax and National Insurance). On £1,000, I reckon that you might be looking for a marginal rate of nearly 70%. Income Tax is 40%, National Insurance is 2%, student loan repayment will be another 9% and nearly 18% in respect of the abatement of Child Benefit, ie 69%. Some incentive to work that little bit harder!

Of course the threshold at which the personal allowance is abated stays at £100k – keeping in play the Jimmy Greaves principle. Always the most effective way for a Government to raise tax is just to freeze thresholds.

On other fronts, the increase in the qualifying period for business owners to qualify for Entrepreneur’s Relief on sale has increased from one year to two years. This will make it even more important to plan ahead to secure this important relief.

I shall be looking in more detail at the Budget proposals over the next few days and looking to identify those issues which are particularly relevant for my clients.

Posted by Paul Short