On first seeing last Wednesday’s budget, I was tempted to think that most people have got off fairly lightly. However, now I’ve had more time to think about it, I’m not sure this is the case. For a start, we’re going to be paying the 2p/litre increase in fuel duty, 2% increase in alcohol duty (and cigarettes) and VAT will increase by the end of the year. On top of that, many will be paying more National Insurance shortly, via tinkering with the upper earnings threshold, in a measure quietly introduced in last year’s budget. Even those who let out a holiday home as a business venture will suffer.

The amount of UK Govt borrowing is just mind-blowing at a projected extra £700 billion over the next 5 years. To put that in perspective for those of you who like to visualise things, £1 billion in £50 notes would apparently fill around 1200 ‘British standard baths’ to the brim. Multiply that by 700 and you’ve got nearly a million baths full of cash (ok, I accept that’s difficult to visualise too). We’re also now told that the UK’s books can’t be expected to balance until between 2018 to 2032, depending on which newspaper you read.

Is taxing the rich, those earning more than £150,000, going to have the desired effect ? I suspect not as much as the Chancellor hopes, which will leave the burden on the rest of the working population in the coming years. The super-rich will either move to a country more favourable to their financial situation, or employ the services of tax avoidance specialists to get them off the hook. Even those people near the lower £100,000 threshold will be looking into ‘salary sacrifice’ schemes to reduce the amount of gross income they report to HMRC. Similarly, any high earner from overseas considering re-locating to the UK will now think twice about it, denying Britain the chance to benefit from their talent, spending power, and ultimately the part they play in the creation of more British jobs. Keep in mind that the from next spring Britain will rank 18th among the G20 economies in terms of income tax and social security rates for senior executives.

Of course, this is all very well for the top employees of large multinationals who can largely choose their location around the world to suit their needs. But what about the owners of UK SMEs, who are often tied to living and working in Britain ? Here’s an example of a successful British entrepreneur who is facing a tripled tax bill by 2011.

So what will happen ? Will British entrepreneurs still be inclined to set up businesses in the UK, or will they base themselves in other countries, or just not start-up businesses at all under the current regime ? I predict that the smart ones will find creative ways of either avoiding or delaying the tax hit. There could be a trend of taking less remuneration, re-investing more in the business, and paying only 18% CGT when the business is sold. Others will hope that whatever happens after the next election will bring them less pain. Only time will tell….

There are a few straws that SMEs can cling to. Loss-making companies will be able to reclaim taxes made on profits in last three years. There will be a top-up trade credit insurance scheme for businesses who see insurers reducing their cover. There’s a new Strategic Investment Fund containing £750 million worth of new investment set up to help fast-growing and innovative industries. The business capital allowance rate will increase to 40% to encourage companies to bring forward investment.

On an even more positive note, if you’re about to buy a property for less than £175K, planning to give up work to care for your grandchildren, about to trade in your 10 year old car for a new one, or are living on a state pension, then things could be a lot worse.

Bookmark and Share