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Thursday, 10 September 2009

Debits on the left and debits on the right

Maybe they think that one of the Big 4 is about to go under because of various claims and they are getting ready to step up to the plate, or perhaps they think one small fry in the financial world would be interested to hear what another has to say, but anyway their PR people sent me an email bigging up a report hectoring the political parties to come clean on their tax policies.

Fair enough, you might think, but since parties never really come clean on tax policies until Budget Day, why should they do so now? Well the beancounters at BDO say that the government needs to act to reduce the £175 billion deficit, and because they have a tax department they have suggested ways that the three main parties might raise £25 billion. With all due respect, £25 billion of tax isn't going to make much of a dent in a £175 billion deficit, particularly one that is due to rise to £200 billion, but accountants have rarely been renowned for their lack of timidity.

BDO suggest that all parties should be comfortable with a freezing of personal allowances, and some hikes in duties on booze, fags, fuel and insurance that would pull in £9 billion, but would differ in other respects:

  • They suggest that Labour could push up NIC and abolish higher rate tax relief on pension contributions, both of which look sneaky enough not to be noticed.
  • They think the Conservatives would be more up front but put the taxes squarely on consumption, by such measures as increasing the standard rate of VAT, applying full VAT to books and magazines, increasing VAT on fuel and other green taxes.
  • Their ideas for the LibDems are just inappropriate. They match the Conservative green initiatives, but place the rest of the costs onto business and savers. At a time when business investment is down they suggest Lib Dems would be happy to cut the rate of capital allowances by 25% (i.e. to 15% having just been reduced from 25% to 20%), abolishings savings and investment reliefs and applying CGT at 10% on principal private residence. The latter idea has to be the craziest of all. The people that will hit will generally be the younger, more employable, workers who might wish to move house as they move jobs or move with their firms. Putting a tax on workforce flexibility is the last thing a liberal should consider.
Interesting thoughts, but they miss the glaring point that is well brought out in the report. Spending and taxation were roughly balanced two years ago, but have since gone their separate ways. The first big step is to tell every government department to revert to the budgets they has in 2007/8. It won't plug the gap, but it will get us most of the way to balancing the books.

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