Self-defeating ritual of ever-higher beer duty must end

Nik Darlington 11.11am

Beer duty has bilged by more than 40 per cent in the past four years, which means when you buy that satisfying pint of ale in your local pub, around 190ml belongs to the taxman.

Meanwhile, more than 5,800 pubs have shut up shop since 2008 at a rate of eighteen per week. Quite frankly, it’s miserable, the sort of news to drive even the most abstemious to drink.

MPs, pub and brewing industry groups and campaigners have made a number of attempts in the past to quash the beer duty escalator, including a successful debate in the House of Commons last November, but to no avail. The Chancellor plans to go ahead with a further increase in next month’s Budget.

Another increase in beer duty would compound the folly of minimum unit pricing and put ever-more pricing pressure on pubs. There’s a semi-plausible argument from some publicans that MUP could chip away at some of the supermarkets’ competitiveness and send punters back through their doors. Yet any gains from that are surely offset by the pain in everyone’s pockets of a dearer pint.

There is a certain silver lining. Politicians have always tinkered with booze taxes, and we can be pleased that Mr Osborne doesn’t wish to follow the lead of his Liberal predecessor Sir William Vernon Harcourt, who in 1895 tried to balance the budget on the back of beer duty alone.

In that November debate, economic secretary to the Treasury, Sajid Javid, hinted that beer duty was simply too lucrative to freeze or reduce, garnering £35 million this year and £70 million the next. Furthermore, it’s Labour’s tax. True, but it would not be the first time this Government had reversed a fiscal act of the previous government.

One gets the feeling that there’s a moralistic streak at play, similar to that driving the MUP policy. I have no truck with being slightly moralistic about alcohol, which is as dangerous a substance as any if in the wrong hands, in the wrong volumes, at the wrong time.

Yet that is why further inflating the price of proper beer in pubs is so self-defeating. Surely it is reasonable to encourage the survival of pubs as focal points of the community, and relatively safe, secure and well-monitored drinking environments. You don’t have a publican withdrawing that second bottle of Buckfast as you slouch on your sofa on Wednesday morning.

So to finish up, register your support with the Mash Beer Tax launched today and request the Chancellor calls time on ever-higher beer prices in pubs.

Follow Nik on Twitter @NikDarlington

4G spectrum failure hardly surprising, but what is Ofcom playing at?

Nik Darlington 9.58am

When George Osborne said the Treasury would raise several billion pounds from the upcoming 4G auction, I along with many others feared (or even expected) that wouldn’t be the case. Some technical and financial reasons for why, but largely an informed hunch.

So it has come to pass. ‘Only’ £2.34 billion has been raised by Ofcom, despite the OBR’s forecast of £3.5 billion.

A couple of observations about the reporting of all this: first, £2.34 billion is still a useful fillip not to be sniffed at; and second, this mini embarrassment has given journalists a perfect excuse to ignore the good employment figures also released today.

Yet a mini embarrassment it is. Perhaps Mr Osborne should not have brandished an outcome ahead of time, but auctioneers tend to set target prices with little impact on bidding behaviour other than to focus it around said target. It isn’t a patch on Gordon Brown selling our gold reserves having already announced to the world his intention to do so.

On the subject of auctioneers, however, something odd happened on BBC Breakfast earlier today. Ed Richards, Ofcom’s chief executive and unsuccessful candidate for BBC director-general (despite being the bookies’ favourite), was on talking about the auction. Mr Richards stated that Ofcom’s priority - as auctioneers - was straightforwardly to hold a fair and proper auction and “ensure that a valuable economic resource was brought into productive commercial use”. Ofcom’s priority - as auctioneers - was certainly not to maximise revenue.

Whether or not this was on instruction from the Government doesn’t matter. It is still odd. Tell auctioneers at Christie’s that the whole point is just to shift stuff and not to maximise revenues, you’ll be laughed out of the room. These are, as Mr Richards also said, “very different times” compared to the 3G spectrum auction, which raised £22 billion in 2000. But it doesn’t mean you shouldn’t at least have a go at it.

Follow Nik on Twitter @NikDarlington

General Anti-Tax Avoidance Principal offers a new judgement-based approach tax

Matthew Robertson 10.39am

"The hardest thing in the world to understand is the income tax." - Albert Einstein

The list is never-ending:

  • May 2012 - 2,000 senior public officials on more than £58,200 were found to be paid “off payroll”, which could minimise their tax bills, according to a leaked letter obtained by Exaro, the investigate website and the BBC’s Newsnight programme.
  • November 2012 - A tax avoidance scheme, marketed by Ernst & Young, that claimed to license newspaper mastheads to avoid tax, has been thrown out by a tax tribunal.
  • November 2012 - Amazon, Google and Starbucks accused of being “immoral”, “manipulative” and of “practising tax avoidance on an industrial scale”.

It is difficult to find someone who doesn’t have an opinion on tax,  a meritocratic society relies on the idea that everyone pays their fair share yet there must also be incentives for individuals and companies to create wealth.

This dilemma has troubled governments for as long as tax has existed and the above examples show that they are not always successful. The onslaught of globalisation and multinationals has further hampered the ability of national governments to tax efficiently as the question of residency becomes less clear.

The constant attempts to avoid tax by individuals and corporations has created a behemoth of tax legislation with some rules dating back centuries. In 2009, Lexis Nexis revealed that the UK’s tax code has more than doubled in size since 1997, going from 4,998 pages in 1997, to 11,520 in 2009, making UK tax code the longest in the world.

Many have called for HMRC to have more powers and better resources to tackle tax avoidance as government initiatives have failed to prevent both individuals and corporations from ‘bending’ the rules. The implementation of IR35 is a prime example of misplaced tax legislation. It took effect in April 2000 and was designed to eliminate the avoidance of PAYE and National Insurance contributions (NICs) by ‘contractors’ who for all intents and purposes are employees.

As the BBC example above illustrates, IR35 has not delivered on its promises and moreover, it has had a negative impact on some businesses as clients become reluctant to engage with some professionals for fear of them being liable for PAYE on their fees. Furthermore, in some instances the legislation is unfair on certain freelancers as employer NICs at 13.8 per cent need to be paid as well as employee NICs and income tax of up to 50 per cent. IR35 has been found out to be unworkable and there is no evidence that it raises any income for the Treasury.

The failure of IR35 is similar to why Albert Einstein could not understand income tax but could comprehend quantum physics. That is, applying a rules-based approach to tax is always likely to fail as rules are open to abuse by their very nature. Rules cannot be applied to individuals in the same way that the laws of physics can be applied to atoms. The wording of any rule can be interpreted to have been complied with or not and it is because of this that many have been able to work within the rules to minimise their tax liability.

The Institute of Chartered Accountants in England & Wales (ICAEW) realised this a while ago and adopt a principles based approach to ethics:

"The ICAEW pioneered the principles-based threats and safeguards approach to Codes of Ethics in the accountancy profession internationally. We believe that this approach is flexible but robust because it focuses on the spirit of the guidance and encourages responsibility and the exercise of professional judgement. The guidance can be applied to the infinite variations in circumstances that arise in practice and can be adapted to rapid changes of the modern business environment."

Professional judgement is the key; HMRC should be able to analyse the economic substance of transactions to determine whether the behaviour represents the true nature of the business or whether it is merely avoiding tax. It is encouraging to see the ‘General Anti-Tax Avoidance Principal’ Bill being debated in Parliament on Friday. Richard Murphy, one of the main contributors to the bill, makes a good case for how successful a rule such as this could be.

One of the main ways Starbucks was able to make a loss in the UK was to pay a 6 per cent royalty to another Starbucks company for the use of intellectual property attached to the brand.

Murphy argues: “The profit stays within the group, and it cannot be justified as commercial since no one would pay a royalty for thirteen out of fourteen years to make continuing losses.”

In other words, economic substance has nothing to do with actual trade and is merely being pursued to avoid tax. An anti-tax avoidance principle would allow HMRC to apply a greater degree of professional judgement instead of following set rules.

Furthermore, it would dampen the obsession of creating more and more rules to close ever more elaborate loopholes. There is nothing inherently wrong with individuals and businesses managing their affairs to minimise their tax liabilities; no one would argue that investing in an ISA is immoral tax avoidance.

Nevertheless, there is a difference between arranging your business in the most tax-efficient way and creating transactions that merely exist to avoid tax. The complexity of the tax system is emblematic of such efforts to create loopholes, it is time for a new approach, one that allows more judgement to be applied.

Finally, I gave him the first word, so I shall give him the last.

‘We can’t solve problems by using the same kind of thinking we used when we created them.’ – Albert Einstein.

Follow Matthew on Twitter @FlatFootTory

Hezza’s magnificent mixed bag and other riveting news

Nik Darlington 10.03am

It is “thought-provoking” and “bursting with ideas”, even “good ideas”, so say Downing Street and the Treasury. There shall be a response in the Autumn Statement, so we’re told. Of course there will, Georgie; and I think last night’s EU budget rebellion was a fine old ruse too.

Lord Heseltine’s independent growth and competitiveness review has garnered a mixed bag of reactions among Westminster’s chattering class. Sky News calls it a “radical plan for growth”. The FT calls it a “radical overhaul”. The Independent describes at as a “highly critical report” that will “just provide succour to the Government’s critics”. The Guardian, always able to locate the grey lining, says it has the look of “a pamphlet produced by an enthusiastic amateur” and full of “reheats of discarded Labour policies”. It is, so one of their journalists writes, “destined for the long grass”.

Granted, the cartoon front-cover does give it the air of something released by one of those kill-joy, bumbling, tenured right-wing think tanks. Though behind the cover there are rich seams of thought and policy. The Times (£) lauds Lord Heseltine’s “ambition and action”, his “elixir of urgency”, particularly on aviation capacity, which does indeed need to be resolved more quickly, albeit not at Heathrow in my view; that newspaper also calls the review “an important step in flushing out a broad narrative for Britain’s future”.

Even ConservativeHome, setting aside their own ideological scruples, found a few bits of the review they liked.

Whatever you deem Lord Heseltine’s review to be (and many cuds have been chewed in the past 24 hours), consider it mainly as this: a classic ruse to create a space within which Downing Street and the Treasury can operate. By daring Tarzan to reach for the stars, George Osborne may hit the moon. This much is obvious.

Elsewhere, it has been a busy couple of days for politicians from this stable. The Sun reports Alistair Burt, foreign office minister, warning of the “real threat” of a nuclear dirty bomb being deployed against Britain. This at a time when concerns are resurfacing about Iran.

The abortion row shows no sign of abating as new health minister Anna Soubry signals no intention of changing laws or guidelines on abortion counselling. The Daily Mail is not amused, nor, for her two pennies worth’, is Nadine Dorries.

On Tuesday, new energy minister John Hayes unilaterally opposed the Government’s wind farms policy. The Telegraph's Peter Oborne writes today that he has “never come across anything quite like it in 20 years reporting politics”. Embarrassing, amateur, or just plain odd: call it what you will, Mr Hayes’ hysterics may have pleased some people, but it sends out a stupidly senseless hodge-podge of mixed messages to investors. This is the scenario spelled out by Mr Hayes’ predecessor, Charles Hendry, as reported today by the Times (£). A group of twenty Tory MPs has quite rightly written to the Prime Minister to complain.

And to finish, a little note of welcome and good luck to new Tory group, Blue Collar Conservatism.

Chaired by the MP for Carlisle, John Stevenson, and led by a broad-based advisory group consisting of Esther McVey (Wirral West), David Nuttall (Bury North), Martin Vickers (Cleethorpes), Philip Davies (Shipley) and Matthew Offord (Hendon), Blue Collar Conservatism aims to foster debate and generate ideas to ensure that blue collar voters remain at the heart of the Conservative party’s agenda.

The new group draws on the support of sixty-three Tory MPs, including the Chief Whip, Sir George Young; the new secretary of the 1922 Committee, Robert Buckland; and others including Damien Green, Laura Sandys and Robin Walker.

If the Conservative party is and always has been a coalition of parties itself, then Blue Collar Conservatism is an admirable cross-party initiative and I wish it well.

Follow Nik on Twitter @NikDarlington

Deregulation of small businesses is proceeding quietly but promisingly

Matthew Robertson 6.01am

If you weren’t already up-to-speed with age related allowances, income tax thresholds and VAT on hot baked foodstuffs, the past couple of weeks have put paid to that.

The Chancellor’s recent Budget hit the headlines for many of the wrong reasons. One man, however, has been surprisingly off the radar. Can anyone remember the Business Secretary?

Proposals emanating from the Department for Business, Innovation and Skills (BIS) caught my eye more than anything else in the Budget - and no, that isn’t because BIS is better than the Treasury at stopping leakages.

The Government has repeatedly stated that small businesses are key to the economy recovery. For instance, David Cameron in November 2010:

"I feel very strongly about the need to do everything we can to help and promote small and medium-sized businesses. They provide nearly 60 per cent of our jobs and half of our GDP."

The thinking is this: deregulate on behalf of these companies and they will invest, grow and hire new employees.

There have been no headline grabbing proposals so far but there has been some quiet progress. In October 2011, BIS released a discussion paper entitled 'Simpler reporting for the smallest businesses'. It was not a statement of government policy but it did offer ideas and evidence that the Government seems to have taken on board.

The main idea was to reduce reporting requirements for micro entities. These micro entities do not actually exist in this country yet but they were defined by the EU competitive council in February 2012 as any company that matches two of the following three thresholds:

  1. Turnover less than €700,000
  2. Gross assets less than €350,000 
  3. Fewer than 10 employees

This would cover approximately 60 per cent of UK companies registered at Companies House.

The reporting requirements for these companies would be significantly reduced. A profit and loss statement would not need to be filed at Companies House and only an abridged balance sheet would need to be prepared.

In plain English, if these proposals are adopted, a significant amount of work and expense undertaken by small companies to prepare accounts would no longer be necessary.

Meanwhile, the Office of Tax Simplification (OTS) has conducted a review of small businesses, in which it was found:

"Despite devoting time, expense and care to calculating tax and filling in tax  returns, half of small businesses worry about making mistakes in applying the rules. They also found that 20 per cent of small businesses (potentially 700,000 businesses) have difficulty working out how much tax they need to pay, and that half of all small businesses had experienced difficulties identifying what is a deductible expense."

The OTS goes on to recommend:

"Small, unincorporated businesses should have the option to calculate their taxable income on simpler cash receipts and payments basis."

It is not certain what impact these proposals would have on small businesses if implemented, but the Government hopes they will provide businesses with more assurance on tax issues, which could lead to more business confidence and a boost to the economy.

These proposals have undoubted benefits. Whether banks would be more or less willing to lend, however, is unknown, but the thinking from BIS is that complex regulation currently impedes small businesses from accessing credit. This lack of access is in turn preventing investment and hiring.

There are many difficulties, such as the concern that these basic accounts would be inferior to those published for other, bigger entities. This could counteract any help small businesses get from reduced complexity in terms of accessing credit.

Above all, these proposals do not seem to consider how useful accounts can be. For instance, a receipts and payment account does not indicated a company’s profitability and would be subject to manipulation (e.g. a company with a cash surplus of £2 million could spend all of that on a new building or a machine just before the end of the tax year, thus giving it a net figure of zero). Users of these accounts would be handicapped by the lack of recorded trading activity, not to mention the effect it would have on the tax chargeable to these companies.

A better approach would be to simplify the tax system itself, in particular by merging PAYE and NIC operations. The contributory idea of NIC has long since disappeared. Furthermore, the result would be more upfront about true total tax rates, which would help to clarify the taxation debate and possibly put pressure on the Government to reduce taxes. The Budget states that the Government is consulting on this change so we will have to wait and see.

Whatever direction we are heading, these proposals could have a great impact on small businesses across the country. What cannot be denied is that the Government is trying to make Britain appear ‘open for business’ by assisting small businesses, the bedrock of the economy.

It might not be the most fashionable or tabloid-friendly sentiment but small businesses are going to determine how quickly Britain grows out of these difficult times - not the 50p top rate, not age related allowances, nor VAT on food.

Matthew Robertson is a trainee accountant. Follow Matthew on Twitter @FlatFootTory

Planning reform: a victory for conservationists, but beware the calm before the storm

Nik Darlington 11.03am

Some (moderately) good news! The Government published the final version of its new National Planning Policy Framework (NPPF) yesterday and it is a paramount improvement on earlier drafts.

What is more, the DCLG has managed to squeeze it in to even fewer pages (a mere 49 compared to 52), proving that as far as planning is concerned, size really isn’t everything.

The Telegraph is tickled pink. The newspaper’s 'Hands Off Our Land' campaign, which I have lauded on these pages before, provided a sustained and important outlet for opposition to the Government’s clumsy proposals last summer. The new NPPF, says the paper’s leader, “strikes a far healthier balance between development and the environment.”

Environment correspondent Geoffrey Lean hails the Telegraph readers who “refused to be fazed” during a seven-month “bloody battle” with a Government that “veered from amazement to anger”.

The Chancellor and Eric Pickles, the Communities Secretary, immediately announced: “No one should underestimate our determination to win this battle.” Meanwhile, Vince Cable, the Business Secretary, called objectors “semi-hysterical”, the planning minister Greg Clark accused them of “nihilistic selfishness”, and his junior, Bob Neill, blamed “a carefully choreographed smear campaign by Left-wingers based within the national headquarters of pressure groups”.

In the Times (£), columnist Alice Thompson declares ”the circle has been squared” by the “genial” Greg Clark, the “Clark Kent of politics” who has “achieved the impossible” by reconciling the divergent interests of big property developers and conservationists. She closes by suggesting mischievously that Mr Clark should be considered for the Department of Health, to “see if he can also achieve the impossible there”.

Meanwhile Sir Simon Jenkins, chairman of the National Trust and perhaps the single most vocal critic of the initial proposals, unsurprisingly devotes his Guardian column to declaring victory for conservationists over the “cowboy lobbyists”.

What last summer read like a builder’s manifesto has been replaced with proper planning guidance.

The builders’ lobby customarily seizes on housing shortage to argue for freeing the countryside for construction. But there is no shortage of land - only of land builders can most profitably develop, and that is rural land.

But Sir Simon warns that, of course, “the proof will be in the eating”. There are still fears for what even these vastly improved reforms could unleash if local authorities and communities, given only twelve months to get local plans together, cannot stand up to powerful developers. Localism is only a virtue if you have strong locals.

The Daily Mail is a lone dissenter among the leader columns:

…Those who stand to gain most are get-rich-quick developers…[and] the biggest losers will be the lovers of England’s countryside…

No amount of ministerial bluster can disguise the acute threat to the countryside - a heritage as precious as our language - contained in the order that there must be a ‘presumption in favour of sustainable development’.

I have written elsewhere why there is no such thing as sustainable development. And as Sir Simon Jenkins wrote last summer, “the only sustainable meadow is a meadow”.

But sustainable development will always be a woolly concept. We cannot truly determine sustainability in the present; that task is left to future generations. We make do with best guesses. Therein lies the risk. Yet such an existential risk would have existed whatever the Government had written down in its planning guidance.

As it happens, by making explicit recognition of the coalition’s updated sustainable development strategy, the wording is tighter and less open to abuse.

What other improvements are there in the final draft? I wrote for the Richmond Magazine last month that recognition of the “intrinsic character and beauty” of ordinary landscapes (i.e. the 55 per cent of the countryside not protected by National Parks and the like) would be crucial to any breakthrough.

That recognition has been restored, along with a brownfield-first policy, stronger protection for the Green Belt and playing fields, and the ‘default yes’ to development has been removed.

These are all revisions to be celebrated. Nonetheless, there are many challenges ahead. When he delivered the Budget last week, the Chancellor was very clear that whatever concessions were made in the final NPPF, development would still be easier, not harder. That remains true.

If localism is to have any worth whatsoever, then local communities need to work flat out in the coming months to be ready. The Daily Mail's negativity (or nihilism) goes too far, certainly. But this could well turn out to be the calm before the storm.

Follow Nik on Twitter @NikDarlington

A curate’s egg of a Budget?

David Cowan 6.02am

On Wednesday, George Osborne grew in stature as a Tory Chancellor. The Budget was the most definitive account of the Government’s plan for growth. Yet it was mainly framed as a tax reform budget, and it is by this standard it should be judged.

In which case, it was also something of a curate’s egg. In places it was bold and radical, while in others it did not go nearly far enough.

Mr Osborne articulated a clear, long-term vision for tax reform. He began by claiming Adam Smith as his guide, embracing the principle that taxes ought to be “simple, predictable, support work, and they should be fair”.

The establishment of the Office for Tax Simplification (OTS) demonstrated Mr Osborne’s commitment to sustained reform of a tax code that must be “fit for the modern world”. (This already comprises measures such as merging the rates of income tax and National Insurance.)

There is the Personal Tax Statement, first proposed by Ben Gummer MP, which will appear for the first time in 2014. It will tell taxpayers exactly how much they are paying in tax and exactly where that money is being spent. This is particularly important at a time when people do not know how much of their hard-earned cash is consumed by the costs of servicing our £7.9 trillion debt.

At the heart of this Budget is the start of a serious shift in taxation from income to wealth.

The 50p top rate of income tax will be reduced to 45p in April 2013, but Mr Osborne has already reassured Conservative MPs that the new top rate will not be permanent. Following the announcement on Wednesday, Ed Miliband immediately rolled out the tired old rhetoric of faux class warfare. The fact is that the top rate was not raising any meaningful revenue - a mere third of what was promised - and as page 91 of the Red Book proves, it will actually be the millionaires paying more after this Budget.

The group of taxpayers that Mr Osborne ought to be most concerned about are the taxpayers still stuck in the 40p higher rate, between £41,450 and £150,000, especially since he has just shifted 300,000 new taxpayers into that category.

This situation is not helped by the changes to Child Benefit. What the economist Andrew Lilico has persuasively argued is a tax rebate, not a welfare benefit, has effectively been taken away from the important ‘squeezed middle’ at a time when living costs are still rising painfully.

Then there is the so-called ‘Granny Tax’, which was ‘unearthed’ by linguistically creative journalists hours after the Budget. Despite the Brown-esque manner in which it was delivered, the policy remains a sensible one. Mr Osborne has said that the age-related allowances will be frozen from April 2013 onwards. The impact has been exaggerated, as Sara hinted at yesterday, and it will be alleviated by the planned increases in the personal allowance.

This leads on to the Liberal Democrats’ key victory: the acceleration towards a £10,000 income tax personal allowance. As a result of this Budget, no-one will pay income tax on their first £9,205 as of April 2013. Everyone working for the minimum wage will see their income tax bill halved.

This has not stopped Conservative MPs from claiming some credit for the policy, as Nick Boles did during the pre-Budget PMQs, and as Robert Halfon’s fascinating Right Angle campaign web site has done of late.

However, what really matters is how these tax changes are funded. Mr Osborne, under pressure from the Lib Dems and even Tories such as Boris Johnson, unleashed a new set of measures to target wealth, largely through tinkering with Stamp Duty.

A new 7 per cent rate will be levied on £2 million properties and a new 15 per cent charge will be used to crack down on the use of corporate envelopes to avoid tax when purchasing properties.

Capital Gains Tax (CGT) will also be extended to residential properties being held by overseas envelopes. This will be accompanied by a new range of anti-tax avoidance and evasion measures.

Altogether, it means that the richest will pay up to five times more than they would have done with the 50p income tax rate.

This is the correct direction of travel for direct taxation. Wealth should be taxed in a manner that is fair and which encourages wealth creation. Yet it still remains the case that the best way to do this is a Land Value Tax (LVT), within the context of simplified property taxes.

The main rate of corporation tax was reduced by 2 points, which will eventually mean corporation tax of 22 per cent in April 2014 - well below the level of comparable countries like the United States but not as low as Ireland’s 12.5 per cent. Mr Osborne wants the rate to come down to 20 per cent by 2015.

But the method taken to fund the reductions in corporation tax was misguided. The bank levy is one of Mr Osborne’s more harmful gimmicks and has yet again been increased (to 0.105 per cent) at a time when our financial services industry needs to be made more competitive, not less.

Mr Osborne has also taken a leaf out of Sir Geoffrey Howe’s book by increasing indirect taxes on consumption (e.g. 5 per cent hike on tobacco duty) to fund deficit reduction and ever-increasing public expenditure. Albeit to his credit, he has managed to keep fuel and vehicle excise duties lower than they would have been under a Labour government.

George Osborne’s vision is of a tax code that is more transparent, where direct taxation moves away from income towards wealth, in which a more competitive business tax regime can boost growth, and where taxes on consumption help to maintain ‘fiscal stability’. Regrettably, political gimmicks like the bank levy and other tax raids continue to infect Mr Osborne’s agenda.

Earlier this week, I asked whether George Osborne could join Neville Chamberlain and Sir Geoffrey Howe among the pantheon of great Tory Chancellors. Wednesday’s Budget brought him closer to the mark, but not quite the whole hog. His fiscal plans have been blown off course since last November and we are yet to experience the full dangers of the largest experiment in quantitative easing ever embarked upon.

Follow David on Twitter @david_cowan

Breaking down the Budget

Sara Benwell 10.53am

Another year, another Budget. Another abortive attempt to find a pub with a garden and a telly with the Budget on it, so that I can enjoy the sunshine and a glass of wine (but perhaps not, thank you very much George, many more cigarettes).

This year’s Budget has been called ‘radical’ by members of the press. It contains many positive elements, including tax measures to help the lowest earners and stamp duty increases for the most expensive properties.

On the negative side, pensions have taken a pounding and there is scant help for the nation’s savers. Let’s look at the headline measures and see what they actually mean in practice.

Income Tax personal allowance to be increased to £9,205 in April 2013

This is the big good news story, which will mean a real cash gain for British workers. George Osborne said this Budget would reward work and this will do so, while also keeping the Lib Dems happy (it is, in essence, a policy they mostly instigated). It means that the Government is hopefully going to reach the £10,000 level desired by Nick Clegg sooner rather than later.

It is worth noting, however, that hidden in the Budget, the Chancellor has lowered the threshold for the 40p higher tax rate from £42,475 to £41,450.

50p top tax rate to fall to 45p

This could be interpreted as a political gamble, rather than financial decision. A nod to the well-heeled and a sop to the right-wing, it could sit well with ‘traditional’ Tory voters.

But it isn’t. While the move will only (directly) assist the highest earners, Mr Osborne said the 50p rate had distorted the economy by encouraging tax avoidance and the cut to 45p will only cost the Exchequer £100 million.

He also claimed the richest would be paying five times more than before, due to other measures such as the increase in stamp duty on properties worth more than £2 million.

Age related additional personal allowance to be phased out

This is already turning out to be the biggest headline of the Budget, with #GrannyTax being the highest trending topic on Twitter yesterday afternoon. Commentators circled in their droves to criticise the changes, for instance Iain Martin on Telegraph blogs, who said it would “spark a war between the generations”.

The Chancellor announced a phasing out of the higher income tax allowance, meaning that from next year, people turning 65 will no longer qualify for the higher rate allowance of £10,500 and instead only receive the standard allowance, which was raised to £9,205. This change, reported to be worth an additional £3.3 billion over the next five years for the Treasury, represents one of the biggest money-makers of yesterday’s Budget.

It is a strange move from Mr Osborne, given that retirees are, statistically speaking, more likely to vote - and vote in great numbers. (While the top rate reduction, conversely, will affect very few voters.)

What we have to remember is that pensioners have also borne the brunt of quantitative easing as annuity rates have been hit hard (see Fraser Nelson’s figures of an ‘annuities rate massacre’ on the Spectator's Coffee House), and whose savings are already hit by with record-low interest rates.

Nevertheless, we ought also remember that most pensioners don’t pay any tax at all and this change will only affect those who earn more than the average working wage.

Child benefit gradually withdrawn from those earning over £50,000

Mr Osborne has bowed to considerable pressure from his own MPs and diluted plans to remove Child Benefit from all families containing at least one higher-rate taxpayer.

Under this new scheme, anyone earning up to £50,000 will be able to keep their Child Benefit, worth £1,055.

Child Benefit will still disappear but now only gradually for parents earning between £50,000 and £60,000. Earn above £60,000 and you will lose the lot.

One of the biggest concerns with the original plan was that it didn’t take into account single income families with that single income falling into the higher bracket - and this problem still exists. Mr Osborne will continue to face criticism as the cuts hit families with a sole high earner on more than £60,000 but not families with two parents earning up to £49,000 each.

New Stamp Duty of 7% on properties worth more than £2m (and rate on company-bought properties rising to 15%)

It is a policy designed to show that the biggest burden should fall on the wealthiest.

It will mean that anyone purchasing a property above the £2 million threshold will be looking at a Stamp Duty bill of at least £140,000.

Property investors will also be a casualty of the new charges on high-value homes.

The Chancellor emphasised a crackdown on tax avoidance and unveiled three extra levies on people buying homes via companies. In future, people who purchase properties for £2 million or more via a company will have to pay Stamp Duty at 15 per cent.

There will also be a consultation on whether people who have already bought homes worth more than £2 million through companies should have to pay an annual levy.

These Stamp Duty changes will have a disproportionately high impact on the London property market. Take just one borough, the Royal Borough of Kensington & Chelsea, for instance, whose average property price is more than £2 million. Some are concerned it could have negative repercussions for London as an international business centre as it will discourage corporate executives from basing businesses in the capital.

Follow Sara on Twitter @sarabenwell