The Chancellor of the Exchequer could have been bolder in kick-starting the economy by considering a temporary cut to the basic rate of income tax to 15 per cent for one year, says ACCA (the Association of Chartered Certified Accountants).
ACCA says that while businesses may benefit from some of the Chancellor’s initiatives, such as investment in infrastructure which will benefit the economy in the longer term, the Budget won’t get people spending to help revive the economy.
Chas Roy-Chowdhury, ACCA head of taxation, said: 'This will go down in history as the bland budget. At a time when the economy is stuttering, it needs a genuine boost. Cutting the basic rate to 15 per cent until 5 April 2014 would have been a brave move by the Chancellor, but would help working families across the UK. Under today’s proposals they, and many others, will not notice any difference. A temporary tax cut seems drastic but these are exceptional circumstances.'
Personal Allowance increase
Chas Roy-Chowdhury, ACCA head of taxation, said: 'The personal tax allowance increase, on the face of it, looks good, but it will only benefit the population who are currently 20 per cent taxpayers, of which there are fewer and fewer. By dropping the threshold for the 40 per cent income tax bracket, many hardworking people who will begin paying 40 per cent for the first time will not just lose the benefits of the increased personal allowance they will actually need to pay additional tax on such things as savings and dividends because of the way the UK system taxes the top slice of income.'
Chas Roy-Chowdhury, ACCA head of taxation, said: 'While it is no surprise the Chancellor went after the tax avoidance hare, he will always be treading a fine line between collecting tax and denting the UK’s appeal as a business-friendly economy – an essential requirement for our recovery.
'A tougher looking tax avoidance regime might look good to the public, but while the Chancellor has been making noises about a global effort to crackdown on tax avoidance, unilateral measures such as GAAR risk diverting businesses currently in or looking to move to the UK into the arms of other markets. The question will be whether other business-friendly tax initiatives, such as the patent box and the lower corporation tax rate will help the UK remain appealing. Some evidence would suggest the rot is already setting in.'
Chas Roy-Chowdhury, ACCA head of taxation, said: 'The downside of this initiative is that it is a 20 per cent tax credit, when a full payment subsidy of £1,200 would be a much more beneficial vehicle for many young families struggling to meet child care costs, which are notoriously expensive. The nature of a tax credit means that where a family is forking out thousands of pounds a year it is the “carer” that will receive the complicated tax credit. If the Government is prepared to pay up to £2400 for two children there is no reason why they cannot give it to families as a subsidy, irrespective of the amount they actually pay for the care. A one child family with two working parents would hugely benefit from the extra funds.
'Should one parent lose their job or decide for the benefit of their child or children that they wish to stay at home, the loss of this credit will be felt.'
ACCA also point out that, as predicted, the rise in fuel duty was scrapped and that will be welcomed by households as well as businesses in the UK. ACCA’s Drivers for Change survey report showed that UK businesses identified fuel costs as a major short term challenge, so this may give them respite.