Chancellor... you made a huge mistake
UNINTENDED consequences syndrome. It is a regular trap Chancellors fall into on Budget Day. Declaring tax increases, that is, which sound sensible in the comfy surroundings of the Treasury’s offices on Whitehall, but if implemented cause untold damage to the economy.
Gordon Brown’s move in 1997 to abolish the tax credits pension funds enjoyed on dividends is a classic case. At the time he heralded it as a smart move, sucking £5billion a year from work-based pension schemes into the Treasury’s coffers. Schemes designed to provide workers with half-decent pensions that would negate their need in retirement to turn to the State for a panoply of meanstested benefits.
But of course Brown’s tax grab – now estimated to rake in £10billion a year – has proved disastrous, reducing many defined benefit pension schemes (deluxe arrangements) to a shadow of their former selves.
Most are now underwater (with pension deficits the depth of the Mariana Trench), nearly all are shut to new workers or further contributions, while many have been unable to pay the pensions promised. A majority face an uncertain future, which is a great worry to workers who are relying on such a pension to see them through retirement.
Brown destroyed the defined benefit works pension scheme, leaving defined benefit arrangements the preserve of public sector workers (Treasury boffins and MPs).
Was it worth the £5billion a year tax grab? Of course not. Sadly, Philip Hammond has just committed a similar taxation sin with his proposed tax raid on the self-employed from April next year.
Like Brown, Hammond carried out this financial harming act in his debut Budget. Unlike the Labour Chancellor, he has the chance to backtrack before legislation is put before the Commons for approval. He should grab it.
Although Hammond’s tax raid has been defended by some, it is wrong on so many levels. For a start, it breaks a Conservative manifesto pledge not to hike up National Insurance contributions. A pledge should be rock solid. Breaking it undermines the Government’s integrity.
Secondly, it represents a taxation assault on many people who are ‘just about managing’ – the citizens that Prime Minister Theresa May has pledged to help.
But most crucially, it is an attack on the self-employed and entrepreneurship – risk-takers who are now the heartbeat of the economy and whom a Conservative Government should be backing to the hilt. As we move closer to ‘Brexit’ there is no doubt that uncertainty over the economy’s strength will pick up. Indeed, the Government’s own forecasts indicate that the economy will slow down next year. Inflation, aggravated by a weak pound, is also eating away at household finances.
Hammond should be doing his utmost to encourage and support the five million self-employed so they can continue to contribute to the economy’s wealth.
Raising National Insurance contribution rates is a tax on enterprise. Admit you made a mistake Mr Hammond, and abandon the hike. Don’t set in train another case of unintended consequences syndrome.
As we move closer to Brexit, Hammond should be backing the self-employed to the absolute hilt