A word in your ear, Eeyore: Try this Tiggerish Budget!

Steps the gloomy Chancellor should take to put the bounce back into UK

TOMORROW afternoon, Chancellor Philip Hammond will present his Budget to the Commons, outlining the Government’s tax and spending plans for the year ahead.

It will hardly provide thrill a minute entertainment – the old glumbucket is nicknamed Eeyore after all – but most of us will either have half an eye glued to a television set or an ear close to a radio, hoping for some unexpected good news in the run-up to Christmas. An increase in an allowance here, a higher threshold there. Fingers crossed.

As is the way of Budgets, leaks (some in today’s newspapers) already suggest that Eeyore is set to address the unfairness of business rates, tax digital companies, and tinker with our pensions.

But what should Hammond be doing if he were a revolutionary Chancellor – more a Tigger than Eeyore – determined to make our financial lives a little easier?

Here are six anomalies he could tackle straightaway to break away from his beloved spreadsheets and see the world through the eyes of hardworking people desperate to make their way in life. There is a recurring theme: More simplicity, Eeyore.

SIMPLIFY INHERITANCE TAX AND CUT THE RATE

THE rules surrounding inheritance tax are fiendishly complicated, resembling something of a bugger’s muddle.

George Osborne, Hammond’s predecessor, is primarily to blame with his (long drawn out) introduction of a ‘residence nil rate band’, designed to exempt family homes if passed on to children or grandchildren. This allowance of £125,000 is in addition to the basic allowance which allows £325,000 to escape inheritance tax.

So a married couple can potentially pass on £900,000 tax-free upon their deaths, including the value of their main home. Anything above this sum is subject to 40 per cent tax.

Experts have consistently argued that the residence nil rate band is little understood and often not used. There are also numerous ways to reduce inheritance tax bills, primarily centred on gifting money – annual gifts, wedding gifts, small gifts. The list is endless and somewhat bewildering. It is time to simplify the tax – an issue the Office of Tax Simplification, an independent arm of the Treasury, is already looking at.

So do away with the residence nil rate band and all exemptions. In their place, have a lower tax rate – say five per cent – but apply it to all estates above say £50,000 or £100,000.

Everyone would know where they stand and there would be no need for clever financial boffins to come up with complicated inheritance tax avoidance schemes.

Does Hammond have the cojones to be so bold? A Tigger would for sure.

REMOVE THE CAP ON PENSION SAVING

ENCOURAGING us to save into a pension through tax relief on contributions currently costs the Government £39billion a year.

So it will be no surprise if Spreadsheet Phil announces a reduction in the amount we can put into a works or personal pension every year before losing the fillip of tax relief.

For basic and higher rate taxpayers, this annual allowance is £40,000 which includes any contributions made by a generous employer.

If he does cut it – some suggest it could fall into line with the £20,000 allowance for contributions into Individual Savings Accounts – then he MUST as a matter of course axe the cap on how much our pension funds are allowed to grow to before they are subject to punitive taxes – as high as 55 per cent on amounts above £1.03million. Squeezing savers can just about be justified if it means the NHS does not grind to a halt in the near future. But they should then be free to grow a pension pot as large as possible without fear of being taxed for successful investment.

Axe the lifetime allowance. Now.

FAIRER PENSIONS FOR TOP RATE TAXPAYERS

ADDITIONAL rate taxpayers are so wealthy they do not need to save much in a pension. That is the message the Chancellor sends out by persisting with a reduced annual pension allowance for high earners which can be low as £10,000.

I have yet to find anyone who really understands how this ‘tapered’ annual allowance is actually applied. Axe it and give everyone the same annual pension allowance even if it is £20,000, not £40,000.

AXE GOLD-PLATED PUBLIC SECTOR PENSIONS

WHILE many public sector workers – nurses and doctors – do a fantastic job in difficult circumstances, it is unfair they continue to accrue gold plated pension benefits, determined by a mix of salary and years worked. Such defined benefit pensions are no longer available to new workers in the private sector because they are too expensive for employers. Instead private sector workers are now pushed into defined contribution plans where the value of their eventual retirement pots are determined by how much they put in – and how well their money is invested. So Eeyore, it is time to announce that public sector employees will in future build pensions in the same way as those in the private sector. Pension fairness for all.

LESS STUDENT LOAN PAIN

A WINNING move would be to reduce the rate of interest charged on student loans. Student borrowers currently poring over their books in the university library are paying interest of 6.3 per cent a year. Eeyore earned his first class degree from Oxford for free – no student loan hanging around his neck upon graduation.

If he had a heart, he would cut the rate so it is in line with inflation. But does he? I wonder.

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ONE ISA FOR ALL TO INVEST FOR THE FUTURE

THERE now seems to be a taxfriendly Isa to address most financial issues – saving for a home (Help to Buy or Lisa), a pension (Lisa, again), a child (Jisa) or for the future (stocks and shares Isa).

Yet their proliferation has spawned a proliferation of rules for each Isa type. It is time to sweep away all this confusion. So, one type of Isa only and one annual allowance (£20,000) per person – young and old. One simple message: invest for the future.