Behind the curtains at Number’s 10 & 11 Downing Street, Jeremy Hunt and Rishi Sunak are desperately searching for clever ways to balance the Budget, without making it too obvious that taxes will be rising.
Whilst Liz Truss and Kwasi Kwarteng believed that growth would solve all our economic ills, Hunt and Sunak are now committed to a combination of tax increases and spending cuts with significant pain for all pretty much guaranteed. This is of course, thanks to the ill-fated efforts of, their immediate predecessors, with the amount needed to fill the ’fiscal black hole’ estimated to be in the region of £50 to 60bn.
Just where cuts can be found without either breaching manifesto commitments or committing electoral suicide is unclear. Therefore, the dynamic duo of new and old Chancellors will have to secure tens of billions of pounds in tax cuts.
When Rishi Sunak was Chancellor, he quickly learned that tax increases are unpopular and therefore hiding them in plain sight is a great plan if you can manage it. Ironically, it may well be that the best solution will be to hide the tax increases in plain sight.
Tax rises by stealth: NIC & SDLT
Historically, the two favourite taxes for taxes rises by stealth are National Insurance and Stamp Duty Land Tax. Unfortunately for the dynamic duo, the problem is that without risking accusations of entering into a fiscal hokey cokey – in-out, in-out, shake it all about – these two might be off-limits in their first Budget.
In the current political climate, it is highly unlikely that they could get away with increasing employees’ NIC as previously proposed. Having said that, Rishi’s characteristic sleight-of-hand strategy might get another airing. This operates by making a big fuss about not increasing employers’ NIC by 1.25% but, instead, generously reducing that figure to 1%, without pointing out that it currently stands at zero.
The other big stealth opportunity results from the days when NIC was a direct levy to pay for the health service. This is now long gone, therefore, the logic of reducing the rate from 12% to 2% on higher earnings no longer applies. Increasing the 2% rate substantially could be a good way to bring in much-needed revenues. It would also be popular with the public as it would be seen as hitting those with the broadest financial shoulders.
Stamp Duty is problematic right now as Jeremy Hunt has already said that he wouldn’t reverse the very generous stamp duty reductions introduced by Kwasi Kwarteng. However, as stamp duty is an area that is almost invisible, an increase in stamp duty land tax could be on the cards in the near future.
Tax rises by stealth: Excise duties
Excise duties are taxes levied on things deemed harmful to public health or the environment, such as tobacco, alcohol and petrol. But it’s important to remember that excise duties are separate from VAT, which is applied to goods and services in the UK.
Arguably a much better bet would be to upgrade all taxes on indulgent spending, which could include booze, tobacco and especially gambling. Such a move would be relatively uncontroversial and could bring in substantial amounts of money. especially as most people do not realise that they exist, when and where they apply or how much is charged.
Tax rises by stealth: VAT
VAT is virtually invisible to the general public, with the only time that they notice it is when there’s a large increase. So, why not start with tinkering with the 5% and 0% lower rates and the various exemptions. There is of course the possibility of a negative media response, but they could sugar the pill by lowering rates on certain essential items, such as sanitary products or possibly exempting them altogether.
Tax rises by stealth: Corporation tax
This is a bit of a minefield at the moment, as when Rishi was in No.11 he planned to raise this tax from 19 to 25%, which was then reversed by Kwasi, with the reversal reversed by Hunt when Liz Truss was briefly in charge. So I suspect that this is an area that will be given a wide berth in the upcoming budget.
Tax rises by stealth: Capital gains tax
At present, CGT is charged at relatively low rates and it is therefore logical at this moment of impending financial disaster to bring CGT rates in line with those for income tax. Not only would this bring in additional funds to the Exchequer, but also simplify tax legislation, which should always be a goal.
It might also help to reduce tax avoidance and even evasion in this area. Once again, there could be a reasonable quid pro quo by increasing the annual exemption to sweeten what could be a rather painful burden for those involved. On the other hand, there is an argument for going the whole hog and reducing or even eliminating the annual exemption.
Tax rises by stealth: Inheritance tax
When talking about stealth taxes, many see IHT as unfair; but if they kept the current rate but reduced the exemptions and allowances this would be an easy way to bring in a few extra bob without causing a furore.
Tax rises by stealth: Inflationary freezes
Finally, it is worth noting that the Prime Minister is an old hand when it comes to freezing exemptions and rate limits, thereby effectively increasing taxes by the rate of inflation, which is currently in double digits. There is every chance that he and Mr Hunt will seek to find every avenue that could be treated in this manner when this long-awaited Budget speech is finally delivered.
Tax Accountant’s view
If Sunak and Hunt really want to take this to the next level, perhaps they should consider decriminalising cannabis and whacking on a nice hefty tax charge as the price for doing so. This might have the added bonus of leaving beneficiaries so high that they do not notice any of the other tax increases!