Our View
by Sue Bonney, Head of Tax & People Services, KPMG LLP (UK)

The Chancellor faced a difficult balancing act this year, with the risk that tax rises would potentially damage growth, but the pressure of a widening deficit preventing a tax “give away”.  So a neutral “steady as you go” Budget was always likely.

That proved to be the case, with the net effect of the Budget policy decisions being less than £1 billion. Indeed, the Chancellor’s mantra was “stability”, which appeared repeatedly throughout his speech. Most of the headline changes had either been announced in earlier Budgets, or extensively trailed in recent weeks.

However, within this broad stability, there were a number of detailed changes. There were significant increases in alcohol duties and (from next year) in vehicle excise duty. And although the increase in road fuel duty this year is being postponed, a real increase is proposed for a later year. As always, the Chancellor also hopes to raise tax from anti-avoidance measures. These tax increases help to fund increases in Child Benefit and Child Tax Credits, and a (one off) increase in the winter fuel payment for the elderly.

The Green “tinge” to the Budget remained sufficiently pale to avoid too many costs falling on voters – though a tax is proposed on disposable supermarket bags, unless the supermarkets introduce such charges voluntarily. 

A number of changes proposed earlier were modified in the light of strong representations.  The government hopes to raise £0.7 billion from the changes to the residence and domicile rules - though whether this is a realistic hope, given the impact on the UK’s attractiveness to entrepreneurs, is perhaps doubtful. Significant relaxations to the residence proposals include moving to a “midnight in the UK” rule for counting days in the UK, and improved relief for transit visits.  And it has been clarified that non-domiciles can be taxed on a remittance basis on trust gains.

The “entrepreneurs’ relief” will give some relief from the general move to a flat 18% rate of capital gains tax: a lifetime allowance of £1million of gains on business disposals to be taxed at only 10%.

For business, the end result remains a highly complex system, often lacking a clear policy framework.  The opportunity for a more radical reform, as urged by the CBI, with a simpler system and lower rates, was missed.  It may prove that such radicalism would in fact have been the safer option, more likely to have achieved the Chancellor’s desired stability.