A Deeply Disappointing Budget

22 Apr

It seems already there is a lot of scepticism from other business groups such as the CBI and the Institute of Fiscal Studies about the Chancellor’s critical budget. There are doubts around the fact that his forecast for growth is optimistic as is his prediction about when he will be able to balance the books. His 50% higher tax rate seems to be more of a tokenistic gesture rather than something that will bring in much revenue. Frankly I find the forecast of debt rising to 79% of GDP in 2013/14 terrifying and it seems we will be paying for this recession in one way or another for many years.

As for what it means for PCG members, I can only say that yet again it is a very big disappointment. In our budget letter to the Chancellor we asked for the repeal of IR35 and other distorting tax laws like s44-7; those calls went unanswered.

The few other areas to note:

Corporation Tax for small firms will not be reformed, following the consultations to which PCG contributed earlier this year and last. The Chancellor did however refer to businesses who are ‘benefiting’ from his decision in the Pre-Budget Report to delay the last of the small firms’

CT increases planned by his predecessor, Gordon Brown. Freelancers who are obliged to use limited companies because of the distorting effects of tax rules will regret that he has not decided to cancel the increase altogether and that it will be introduced in 2010/11.

Regarding income tax, the number of freelancers affected by the new top income tax rate of 50% on income over £150,000 and the restriction of personal allowances for incomes over £100,000 will be small: just over 10% for the former and less than 30% for the latter, though clearly the allowance changes will still be significant for many. 

PCG will be seeking clarification of why there is no confirmation that the Finance Bill will contain an enabling clause to put the new HMRC Charter in statute, despite the Chancellor’s promise to do so at the PBR.

PCG is also concerned at the proposal for HMRC to publish the names of taxpayers who have “deliberately understated” more than £25,000 of tax. Will this mean that victims of IR35 investigations will have their reputations smeared by HMRC? Such action would be wholly unnecessary. PCG will be asking for assurances from the Government about this and other plans to strengthen HMRC’s arm.

A further announcement of potential significance was the proposal for new legislation to tackle “false self-employment” in the construction industry. PCG repeats its position that legislation is needed to clarify general employment status in the UK, and not just tax law to cope with the revenue consequences of the current mess.

Ultimately it may well be a Conservative Government that will have to pick up the pieces of this “unprecedented financial crisis” as the Chancellor called it today. Many of the measures will only be implemented after the next General Election and a new Government does not have to carry out the proposals of the old Government. It will obviously take a miracle for Brown and Darling to repeal IR35. Therefore our attention at PCG will now focus intently on talking to and trying to influence the Opposition Parties who might well form the next Government

See the full official review from the PCG here

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One Response to “A Deeply Disappointing Budget”

  1. Phil Richards April 24, 2009 at 6:49 am #

    Thanks John, I also think that the mention of the Government’s interest in “false self-employment” shows that it appears that they are sceptical about the fundamental choice some people make about being a freelancer or professional contractor and it is good to see the PCG continuing to try and educate Government about the valuable role that is played by members of the flexible workforce. I also believe that instead of assuming all self employed persons are disguised employees it would be better to enact clear and well thought out legislation on self employment so that both Clients and Freelancers can make confident decisions about their status.

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