Given all of the tales of doom and gloom that were circulating before the Budget we suspect that most people’s reaction to the Chancellor’s announcement will be “not too bad considering what might have happened”.
Certainly the capital gains tax changes are not as hard-hitting as we feared. The £5m limit to Entrepreneurs’ relief takes the sting out of the increase in non business asset rates,although it is surprising that the latter took effect from midnight rather than 6 April next year. Capital gains tax computations for 2010/11 are going to be a nightmare.
Large companies will probably be relieved that capital allowance rates have not been savagely cut to pay for the very welcome reduction in the headline rate of corporation tax, but small business owners have grounds for feeling unfairly treated through the reduction in the annual investment allowance from £100K to £25K. This does seem a backward step and will hardly encourage small businesses to invest in new equipment.
The VAT increase was inevitable but by delaying the introduction until 4 January the Chancellor will have brought some Christmas and New Year cheer to consumers.
Despite indications to the contrary, NIC for employers is set to increase in line with the previous government's proposals, albeit only applying to employees earning over £21,000.
Away from the headlines we were encouraged by the coalition's stated intention to create a long-term stable structure to the making of tax policy. In the past we have had too many examples of knee-jerk changes to tax policy which end up creating more problems than they solve. If, and it is a big if, the new government can stick to its principles we may at last get an environment in which individuals and businesses can plan for the long term, safe in the knowledge that they are not going to be hit by unexpected changes of policy.
Will it happen? We are encouraged by what we have seen so far but a lot can happen over the lifetime of a government and we cannot help feeling slightly disappointed that the Chancellor has been so misleading on NIC, especially given the pledge that he would not hide anything in the small print.
Full analysis: