Poor planning by UK Treasury or a return to stealth taxes?

25 August 2015

George Bull

In this week’s Tax Brief, we look at the way some of the proposals contained in the Summer Budget statement, delivered by Chancellor of the Exchequer George Osborne on 8 July 2015, are developing.

Notwithstanding the Chancellor’s authoritative presentation of his statement it was clear that, so soon after an election which against all expectations returned the UK to single-party rule, many of the big ideas had not been worked up into detailed proposals. With more information now emerging, two of these are particularly significant.

First, the tax regime for private landlords. The Treasury estimates that phasing-out of tax relief on mortgage interest, along with restrictions to the wear and tear allowance, will increase taxes by almost £1bn per year by the end of this Parliament. As a consequence, there is a growing belief among property consultants that this will drive many private landlords out of the market. Leaving aside the tax increases, who will replace landlords who sell up? And with registered social landlords facing up to 1.3 million ‘Right to Buy’ sales to tenants, what will be the wider impact of these tax changes on the availability of rented accommodation? In his piece below, my colleague Gary Heynes looks in more detail at the tax changes for private landlords.

Second, the new personal tax dividend allowance and associated changes to tax credits. I’m very unhappy with the way these have been handled by the Treasury and HMRC. There’s a real sense in which something that was announced as an ‘allowance’ – with all that implies in terms of tax reductions – will for many people amount to a tax increase which breaches the income tax part of the Chancellor’s self-imposed ‘triple lock’. Make no mistake about the massive size of the tax increase. The Treasury’s own figures put this at a whopping £2.5bn for 2016-17 alone. My colleague Andrew Hubbard delves into this in more detail in his piece.

All of this leaves two nasty impressions. First, that the credibility of the ‘triple lock’ commitment not to raise income tax, national insurance or VAT will come under increasing strain as people see the taxes they pay increasing as a percentage of GDP. Second, if the Summer Budget sets a pattern for the future, we can expect to see more ‘stealth taxes’ being introduced under this government.

Which is ironic when one remembers that the phrase was coined by the Conservatives to describe Labour tax increases after the 1997 election…