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| Under cover of storm clouds, Osborne plans stealth tax subterfuge | Under cover of storm clouds, Osborne plans stealth tax subterfuge |
| (about 1 hour later) | |
| Stealth tax enthusiast George Osborne is gearing up for more of the same subterfuge at his next budget. With only a fortnight to go before he stands up in parliament to repeat his warning of gathering storm clouds and the even more fear-inducing cocktail of threats from a worsening global economy, he is morphing, if only in this respect, into Gordon Brown, who always had a keen eye for a stealth tax. | Stealth tax enthusiast George Osborne is gearing up for more of the same subterfuge at his next budget. With only a fortnight to go before he stands up in parliament to repeat his warning of gathering storm clouds and the even more fear-inducing cocktail of threats from a worsening global economy, he is morphing, if only in this respect, into Gordon Brown, who always had a keen eye for a stealth tax. |
| Free from the constraints of coalition politics, the chancellor is adopting the same tactics as Brown, whose penchant for devising under-the-radar taxes to balance the books became a hallmark of his tenure at No 11. | Free from the constraints of coalition politics, the chancellor is adopting the same tactics as Brown, whose penchant for devising under-the-radar taxes to balance the books became a hallmark of his tenure at No 11. |
| And these heavily disguised taxes, so much a feature of the Brown years, are essential because Osborne too believes that fiddling with the headline rates of tax on personal wealth and income is political suicide. | And these heavily disguised taxes, so much a feature of the Brown years, are essential because Osborne too believes that fiddling with the headline rates of tax on personal wealth and income is political suicide. |
| Related: IFS says Osborne faces tough choices to hit deficit target | Related: IFS says Osborne faces tough choices to hit deficit target |
| The Institute for Fiscal Studies warned us in the two years running up to the last election that tax rises were coming. It said there was no way to achieve the aim of reducing the deficit, all other things staying the same, without raising money from extra tax. Osborne always dodged the question. The IFS, which will carry out its annual assessment of the public finances 24 hours after the budget, has often warned against stealth taxes to no avail. | The Institute for Fiscal Studies warned us in the two years running up to the last election that tax rises were coming. It said there was no way to achieve the aim of reducing the deficit, all other things staying the same, without raising money from extra tax. Osborne always dodged the question. The IFS, which will carry out its annual assessment of the public finances 24 hours after the budget, has often warned against stealth taxes to no avail. |
| And so it was that last year the chancellor slapped a huge tax hike on insurance cover. The rise from 6% to 9.5% in insurance premium tax in the 2015 summer budget added an extra £100 to the annual cost of insurance for many households, according to the industry, which is probably an underestimate given the Treasury says the extra tax will raise more than £8bn over the next five years. | And so it was that last year the chancellor slapped a huge tax hike on insurance cover. The rise from 6% to 9.5% in insurance premium tax in the 2015 summer budget added an extra £100 to the annual cost of insurance for many households, according to the industry, which is probably an underestimate given the Treasury says the extra tax will raise more than £8bn over the next five years. |
| It’s clever to make us all resent our insurers rather than the chancellor of the day, that’s for sure, which is why the insurance industry is currently begging the Treasury not to repeat the trick. | It’s clever to make us all resent our insurers rather than the chancellor of the day, that’s for sure, which is why the insurance industry is currently begging the Treasury not to repeat the trick. |
| Insurers are also pleading with officials at N0 11 to drop their ideas for reforming tax on pension saving. In this instance, reform is another word for a stealthy revenue earner by way of a cut in the amount of tax relief available to savers. It is another rich vein to tap. Estimates put the amount of tax relief on pension savings at anywhere between £20bn and £35bn. | Insurers are also pleading with officials at N0 11 to drop their ideas for reforming tax on pension saving. In this instance, reform is another word for a stealthy revenue earner by way of a cut in the amount of tax relief available to savers. It is another rich vein to tap. Estimates put the amount of tax relief on pension savings at anywhere between £20bn and £35bn. |
| Osborne has already added £500m to the exchequer by limiting the lifetime limit on pension savings. This limit, introduced by Brown, imposes a punitive tax on savings above a certain amount. Brown started with a figure of £1.5m and raised it over time to £1.8m. | Osborne has already added £500m to the exchequer by limiting the lifetime limit on pension savings. This limit, introduced by Brown, imposes a punitive tax on savings above a certain amount. Brown started with a figure of £1.5m and raised it over time to £1.8m. |
| The chancellor has cut it to £1.25m and announced a further cut to £1m from April. It still sounds like a lot of money, but £1m in a pension pot translates into a retirement income of around £40,000 a year. And while this is a stupendously good pension when in all likelihood the recipient has very few outgoings, it captures thousands of middle-income earners, from deputy headteachers to BP engineers and Topshop store managers. | The chancellor has cut it to £1.25m and announced a further cut to £1m from April. It still sounds like a lot of money, but £1m in a pension pot translates into a retirement income of around £40,000 a year. And while this is a stupendously good pension when in all likelihood the recipient has very few outgoings, it captures thousands of middle-income earners, from deputy headteachers to BP engineers and Topshop store managers. |
| A further cut in tax relief would come from reducing the higher rate of tax relief from 40%, which would affect people lower down the scale on incomes of about £40,000 a year and above. | |
| Getting back to the stealth aspect, few people understand how their pensions work, let alone the effect of tax relief on a fund’s ability to compound over time into a large pot of savings. | Getting back to the stealth aspect, few people understand how their pensions work, let alone the effect of tax relief on a fund’s ability to compound over time into a large pot of savings. |
| They will probably keep putting away the same proportion of their salary month-in-month-out, not realising that the contribution from the government has been cut. Over time, savers will come to realise what a poor deal pensions offer without huge amounts of government support, but Osborne will be long gone. | They will probably keep putting away the same proportion of their salary month-in-month-out, not realising that the contribution from the government has been cut. Over time, savers will come to realise what a poor deal pensions offer without huge amounts of government support, but Osborne will be long gone. |
| Another revenue-raiser is the Treasury-sanctioned increase in council tax from April. This is supposed to go some way towards filling the gap left by huge cuts in local-authority funding that in many cases, especially inner-city Labour-run councils, will amount to more than 50% between 2010 and 2020. | Another revenue-raiser is the Treasury-sanctioned increase in council tax from April. This is supposed to go some way towards filling the gap left by huge cuts in local-authority funding that in many cases, especially inner-city Labour-run councils, will amount to more than 50% between 2010 and 2020. |
| Related: Local councils warn of critical funding crisis as £18bn grant is scrapped | Related: Local councils warn of critical funding crisis as £18bn grant is scrapped |
| Until now the Treasury has provided a financial incentive for councils to freeze the tax: by handing cash to compliant councils. Not any more. So really, councils are only making up what was lost from the incentive’s withdrawal. | Until now the Treasury has provided a financial incentive for councils to freeze the tax: by handing cash to compliant councils. Not any more. So really, councils are only making up what was lost from the incentive’s withdrawal. |
| The IFS has warned against rises in council tax without root-and-branch reform because it regressively targets poorer households, leaving those in expensive homes to pay proportionately less. Few council tax payers in low-value homes realise how the failure to reassess house values since the early 1990s has worked against them, leaving increases in the tax to do their redistributive worst by stealth, and better still, at arm’s-length from the Treasury. | |
| Another revenue-earner is the apprenticeship levy. This will raise £3bn a year for the exchequer from large and medium-sized businesses. This is not only a stealthy way to gather funds, it also fits with another Osborne tactic, which is kicking government costs down the road. | Another revenue-earner is the apprenticeship levy. This will raise £3bn a year for the exchequer from large and medium-sized businesses. This is not only a stealthy way to gather funds, it also fits with another Osborne tactic, which is kicking government costs down the road. |
| The apprenticeship levy will, in time, be revenue-neutral once the government has built a computer system to run it and the money is doled out to fund apprenticeships. But in the meantime it is booked in the government accounts as a boost to the public finances. The costs are for another day. | The apprenticeship levy will, in time, be revenue-neutral once the government has built a computer system to run it and the money is doled out to fund apprenticeships. But in the meantime it is booked in the government accounts as a boost to the public finances. The costs are for another day. |
| This is similar to the multibillion-pound transformation of university funding, which is reliant on upfront funding from a debt vehicle – the Student Loans Company – and the repayment over many years by graduates. Whether that happens or not is for a chancellor of the future to deal with. | This is similar to the multibillion-pound transformation of university funding, which is reliant on upfront funding from a debt vehicle – the Student Loans Company – and the repayment over many years by graduates. Whether that happens or not is for a chancellor of the future to deal with. |
| In the meantime, Osborne can be expected to maintain his course, preserving the tax rates of his core audience and where he adds a little extra to maintain his deficit reduction course, making sure they pay extra without knowing how it happened or that he is to blame. | In the meantime, Osborne can be expected to maintain his course, preserving the tax rates of his core audience and where he adds a little extra to maintain his deficit reduction course, making sure they pay extra without knowing how it happened or that he is to blame. |