There will be an “emergency” budget later this month. This was promised during the General Election campaign and our economic circumstances certainly require it to happen. There is bound to be some nervousness about where savings will be made and taxes increased.
On the tax side,Britainwent through a horrendous period in the 1970s when the top-slice tax rate was 83% to which a further 15% investment income surcharge could be added. This produced a tax rate of 98% in some circumstances. At the same time, the basic rate of income tax had reached the incredibly high figure of 35%.
The Labour government of the time seemed to enjoy this financial regime. There were quotes such as, “….soaking the rich until the pips squeak….”. This approach to budgeting drove away many of the people who could lead and assist a return to economic prosperity. The system seemed motivated by covetousness and envy rather than the national interest.
Governing politicians of the day forgot that the wealth generated by the few could resonate through the economy and benefit all of the people. There was also a fixation on the notion that wealth was only monetary in nature. A person can be a “celebrity” with a great deal of money but if they have missed a rounded education in the process of getting there, how wealthy are they in the broadest sense?
The government faces difficult decisions with its first budget. With the state of the public finances today, we will see an increase in certain taxes. We need to recognise that this time around, many people have seen their financial position damaged even if they have been prudent. This is particularly true of savers and people entering retirement.
A priority for the government’s budget must be to protect the most vulnerable. Some of us will have to bear a temporarily larger burden for the common good.
Over many years, governments have provided tax-free savings products with a bewildering range of names. We have had TESSA and PEP. Then we looked to the United Statesfor inspiration with its Individual Retirement Account but the acronym would not have played well here – hence the ISA (Individual Savings Account).
These particular vehicles have helped savers in a significant way and provide some protection from any changes to CGT (Capital Gains Tax). There is some truth in this being called a “rich person’s tax”. You are doing rather well if you consistently break through the annual tax-free limit of £10,000.
Nevertheless, there is something to be considered about the targeting of any increases in the rate or reductions in the tax-free threshold. There is a distinction to be drawn between short-term speculators and long-term savers. The latter, who might have been saving for retirement, could easily be treated too harshly and lose some of their ability to spend in the real economy. That is in nobody’s interest and should be avoided.
Councillor Bob Lanzer, Leader of Crawley Borough Council
2nd June 2010