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Cutting edge tax reforms

The 2024 Budget is due on 6th March and I’m intrigued as to what, if any, rabbits Jeremy Hunt can pull out of his hat to try and save the Tories from humiliation in the General Election due later this year. Not many I suspect.

This led me to consider what will happen later this year with a new occupant in no. 11 Downing Street. If the next Chancellor of the Exchequer is really committed to levelling up, he or she must think seriously about a severe short back and sides for the tax system. Which brings me neatly to a favourite hobby horse of mine, namely anomalies in our tax system. 

According to the accountancy firm RIFT, the published average salary data from the Office for National Statistics show that the profession hit hardest by the UK’s nastiest stealth tax, the freezing of personal allowances, is people who cut hair. The data shows that in the 2022/2023 tax year, the average gross salary for a hairdresser/stylist/barber was £14,725 on which an estimated £650 in income tax and NIC was paid, with next on the list of poorly paid occupations being beauticians, taxi drivers and florists.

Tax Returns: Not much taken off!

A few weeks ago, the Prime Minister and Chancellor published their tax returns. It is to be applauded that both Rishi Sunak and Jeremy Hunt have revealed the details of their tax liabilities, as opposed to most of their predecessors keeping personal tax information under wraps, for blindingly obvious reasons. Long may such openness continue, whoever might take on these roles going forwards. 

If I was in charge, I would only pay the PM and Chancellor a very modest salary but then incentivise them with generous bonuses if they could achieve genuine economic growth, ensuring that each would receive a seven-figure sum if they could hit the growth jackpot. Alternatively, if they reduced the National Debt without cutting social services to pay for it.

Pretty much every hairdresser and most accountants, would be very happy with a gross income equal to the taxes paid by Jeremy Hunt last year of circa £100,000, which is dwarfed by Rishi Sunak’s total tax bill of circa £500,000. So not much taken off then, as if CGT rates were the same as income tax, Rishi’s bill would almost double.

As most people will be aware, decisions on tax policy are largely down to the dynamic duo of PM and Chancellor, which brings me rather neatly to the difference in rates between income tax and CGT (Capital Gains Tax). CGT forms the bulk of the taxes paid by Messrs Hunt and Sunak, which makes one wonder, just how easy it is to be objective about the taxation of capital gains in a situation where you (and most of your close friends and colleagues) stand to benefit very significantly by maintaining the status quo?

Capital gains: An even trim

Former Chancellor Nigel Lawson once said: “In principle, there is little economic difference between earned income and capital gains and in so far as there is a difference, it is by no means clear why one should be taxed more heavily than the other.” In fairness to Mr Lawson, he put his money where his mouth was when in 1988, he equalised the rates of income tax and capital gains tax.

It is to be regretted that subsequent chancellors, both Conservative and Labour, nibbled away at this measure, allegedly to promote growth and investment (or was it just to give a financial thank you to their financial backers and mates?) but no doubt you have your own opinion on that! 

NIC: Ignore the grey hairs

National Insurance Contributions have always been seen as a grey area and successive chancellors have consistently perpetuated the myth that NICs are not a tax. I really do wish the government would be honest with us and admit that NICs are nothing more than a supplementary income tax.

There is also a strong argument that NIC should be charged at the full 10% rate on all earnings above the 40% tax threshold, rather than knocking 8% off for higher rate taxpayers. By failing to follow the Lawson precedent last year, assuming that the gains were not made on residential property, our prime minister benefited to the tune of £450,000, while his Chancellor was over £50,000 better off.

Style above substance

We’ve all sat in the stylist’s chair while he or she is snipping away and  regaling you about their latest holiday to Magaluf before flourishing a mirror and saying, “I’ve finished, what do you think?” We all tend to say that it looks lovely whilst wondering why we still seem to have pretty much the same amount of hair that we came in with?

There are clear parallels between the average chancellor and your hairdresser, with both professions claiming that they have reduced the amount of tax/hair, when in reality very little has been taken off!

Tax cuts: Another bad hair day?

Jeremy Hunt has said that he is committed  to £20billion of tax cuts in the Budget next month, which he is claiming will significantly boost the economy. However, since this theory has been borrowed straight from the Liz Truss playbook of disastrous ideas, the rest of us may justifiably be a little sceptical as to whether or not we will collectively have a second bad hair day.

The jury is out as to the question, will Sir Keir Starmer and Rachel Reeves will do any better. Their success or lack of it, remains to be seen. If the next administration does not have the nous to take measures that would address the imbalance between the different taxes, whilst also being popular with the vast majority of the population, perhaps we could appoint a stylist as Chancellor of the Exchequer and let the fun begin. 

Tax Accountant’s view

My own somewhat cynical view is that nothing much will change, assuming that ‘the other lot’ get elected at the next election. They’ll huff and puff, but will not blow down the present unequal house of tax and rebuild it in a fair and sustainable fashion. There are just too many vested interests involved!