Budget 2024
Summer break is over, as is the honeymoon period for the new government. On 30 October 2024, Rachel Reeves delivered her first Budget as Chancellor, which was momentously the first ever Budget delivered by a woman. Aside from that there was worry in advance that the Budget would achieve very little, and simultaneously cries from the media of the untold levels of destruction that would be caused by Labour unnecessarily raising taxes on hard working British workers. Both turned out to be true, at least in some respects. In some ways this Budget started the journey of addressing the many problems we have with our economy that weren’t fixed by the free market as we were promised repeatedly by the Conservatives. In others, the changes made didn’t go far enough to properly redress the gross inequality that we as a country have developed. I am going to be focusing my thoughts in this blog from a political perspective. If you would like to read my thoughts on what this means from a financial planning perspective, my professional blog is available here. What We Welcomed There was a lot to welcome in this Budget, not least of which was the fact that it was the first ever delivered by a female Chancellor. Beyond that, it took steps towards repairing our broken economy, with increases to Capital Gains Tax, restrictions on Inheritance Tax and confirmation that the Non-Domiciled Status would be abolished. Capital Gains Tax, the tax on realised gains from assets bought and sold, was increased from 10% to 18% at the basic rate and from 20% to 24% at the higher rate. This is still not a return to the heady days when Capital Gains Tax was 40%, but 24% is actually the rate that would have been paid on the longest-term capital gains once the maximum effects of Taper Relief were applied (Taper Relief was an effort to accommodate inflation so that people weren’t paying the full rate of tax just due to rising costs). As such, this is a reversion to an old rate of Capital Gains Tax, at least for the higher-rate taxpayers, and it is fair to say that during that time there were still calls for major reform to that particular tax for equality purposes. In particular, it is quite disappointing at first glance to see an increase of 8% for basic-rate taxpayers and 4% for higher-rate taxpayers, but it is important to remember that there will be very few basic rate taxpayers actually affected by this given it is a tax paid predominantly by the very wealthy. The combination of cumulative ISA allowances of £20,000 per person per year and the fact that basic-rate taxpayers would need to be earning under £50,000 a year means they are unlikely to pay Capital Gains Tax at all. Inheritance Tax tightening is welcome, in particular the anomaly that is the unlimited relief from inheritance tax for “unquoted” shares (which perversely includes companies quoted on the Alternative Investments Market, or AIM, which includes several companies worth over £1 billion) after a holding period of 2 years. This was essentially a huge gift to those wealthy enough to make large investments into fairly high risk ventures without worrying about their financial future. It was also available for “working farmland”, which would have included some very large hereditary estates used for things like grouse shooting. These reliefs have been curtailed, with the full relief only available on £1 million of assets, with the excess limited to 50% relief. This might have an enormous long-term effect on the strategies used to sidestep inheritance tax for larger estates, but is very unlikely to stop the process altogether because there are many other workable strategies, including simply gifting large swathes of the estate and surviving for 7 years. Inheritance Tax is largely already considered “optional” once an estate gets sufficiently large, and while it is nice to partially redress some of the oddities in the tax, this is far too little to expect any meaningful results. The abolition of the Non-Domiciled Status is welcome. Essentially this was an option for wealthy individuals from overseas to come and live in the UK but not pay tax on their worldwide assets in the way that a resident born here would have to. This essentially came from the idea that wealth would trickle down, i.e. if we managed to attract wealthy people to the UK through low tax, they would benefit the country by spending their money here. In reality it led to a large industry of overseas trusts and careful management of family finances to pay as little tax as possible whilst enjoying the status of being full UK taxpayers. The overall combination of these changes is expected to be a significant increase in tax take, and from that the Chancellor announced increased budgets for the NHS, justice and education systems, all of which are welcome. Whether these increases are sufficient to fix the various problems within each of these remains to be seen. Also announced were official redress schemed for those affected most by several scandals over the years, including the Post Office Horizon scandal and the infected blood scandal. Frankly these are long overdue, and it is genuinely awful that it took a change in government to get these properly funded. What Was Missing Unfortunately there was a lot missing in the Budget. You would have to have been hiding under a rock not to have heard the calls for a wealth tax, whether as a one-time payment or as an ongoing annual tax, but this was conspicuous by its absence. An effective wealth tax is the only means to address wealth inequality, and whilst Inheritance Tax is a form of wealth tax, as mentioned above it is far from effective. Given this, the changes to taxes in this Budget feel like wallpapering over major structural defects in the UK tax system. Increased Capital Gains Tax might feel like it goes some
Scandals
A brief look at some of the recent scandals of the Conservative government.
Tax Evasion by MPs
I’m going to say something that might be deemed controversial by some (though hopefully not many) – MPs shouldn’t commit tax evasion! I know, I know, a radical suggestion that those elected to represent the country should be happy to pay the country what they owe in taxes. The news this week that Nadhim Zahawi, current Chair of the Conservative Party and former Chancellor of the Exchequer, has agreed to pay up an amount that he (may have) evaded summing to around £3 million is frankly outrageous. So how should we respond to alleged tax evasion by MPs? In my view, this is yet another area that needs significant reform. It’s lower down my priority list than some other matters, but this seems like an easy thing to fix, so perhaps it will end up being higher on the agenda. What Happened? This story has really blown up in the last month, but it has been brewing for a long time. In essence, Nadhim Zahawi set up YouGov, and information-gathering firm. So far so good. Where it goes wrong is that he deliberately created this in an offshore vehicle, owned in large part by his parents. While the exact technicalities of this are beyond me and well into the realm of tax professional, the exact structuring has been analysed by Dan Neidle at Tax Policy Associates for several months. Worth a read here. Dan and I definitely don’t see eye to eye on all matters of tax, but on this we are without question united in our rage. Dan Niedle of Tax Policy Associates, probably Nadhim Zahawi’s worst nightmare at the moment. Importantly, that’s not where this ends. Zahawi clearly didn’t like this analysis, so he challenged it. Not just by disagreeing with the analysis, but by instructing solicitors Osborne Clarke to essentially threaten legal action against Dan Niedle. Dan being a former partner at a very successful London law firm was not the ideal target for such a threat, and he responded wonderfully. Again, the whole saga is worth a read, but the long and short of it is that Osborne Clarke ended up not pursuing a claim against Dan, and were in turn reported to the Solicitors Regulation Authority for abuse of the legal system. End Result So how does this saga end? We have someone allegedly evading taxes of £3 million and only coughing up after months of analysis and questions from a very well-qualified outsider. His agreement to repay the taxes shows clearly that this amount should have been paid in the first place, and as such this looks like evasion rather than avoidance – the latter being legal use of things like ISAs and pensions, which HMRC would have no claim over. Given this is – apparently – tax evasion by a former Chancellor of the Exchequer and the current Chairman of the Conservative Party, what should we expect to happen? My prediction is “nothing at all”. The Conservative Party has displayed very little interest in punishing tax evaders of a certain level of wealth. It seems that once you get above a certain level of wealth, you get carte blanche to behave however you like, with barely even a slap on the wrist if you get caught. In this case, paying back the tax that should have been paid in the first place is nowhere near enough. This is a man who served as the Chancellor and before that called for the tightening of tax loopholes under the former Labour government. He clearly knew exactly what he was doing and chose to deny millions of owed tax to the UK regardless. Whether you support conservative principles or not, this sort of behaviour should not go unpunished. Zahawi should have to pay back considerably more than the tax he underpaid, and should right now be facing criminal charges to analyse whether his behaviour was egregious enough to warrant jail time. At the very least, he should no longer be allowed to serve as an MP.