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Do you believe in fairies?

The only other Darling I can recall was Wendy in Peter Pan. She and her brother were taken off to Never Land and now a Darling is about to take us off to Never-Never land where our debts will not get paid off in the foreseeable future. So-called experts have been queuing up to tell us that we are in the worst recession since the Second World War/the reformation/the peasants' revolt (delete as appropriate). Of course, the more that the experts say this, the more those of us not already out of work will believe it and act accordingly. It follows that consumer spending is not going to increase until those out of work are back in work and those still in work start to believe that the recession is over. In Peter Pan, Tinker Bell is poisoned by the evil Captain Hook and will only recover if all the children declare that they believe in fairies. Similarly the economy will only recover if people start to believe that it is recovering.

Alistair Darling tried hard to give some sign of that belief despite the fact that he is wading through the slough of despondency. He put on a brave face but there was little to be optimistic about. Of course, it would have been highly inappropriate if he had said Hey guys, it's not all bad news! Gordon wants to give us all a tax-free round-sum allowance to spend how we like so we don't have to submit invoices for all those embarrassing little items that have made the headlines recently.

If your income drops, you need to cut your expenditure. It is highly irresponsible for an individual to increase expenditure and run up massive debts that cannot be repaid out of that reduced income. Such principles do not, however, apply to governments. Although Darling is proposing a cut in public spending of £15bn, he is also increasing spending in the motherhood and apple pie areas of housing, the unemployed and child tax credits and increasing borrowings to over £178bn this year. How is he going to repay these loans? It can only be by increasing income. Governments have one major advantage over the rest of us; they can increase their income at will by simply taking more of ours.

Cigarettes, booze and fuel are all to be taxed more heavily and of course we already know that National Insurance is to be increased from April 2011, a significant date which occurs after the next General Election. However, the real pain seems to have been reserved for the rich, which the Chancellor has decided to class as those with an income of over £150,000 p.a. Instead of the previously announced 45 per cent top rate applying from April 2011, the rate is now to be 50 per cent imposed a year earlier. Similarly, the withdrawal of personal allowances for the rich has been brought forward to 2010. This looks to have a political motive behind it as the majority of the electorate will be more than happy to see the rich pay more taxes and, as it will come into effect just before the May 2010 General Election, it puts the Conservatives in a position where they have to support the increase or incur the wrath of the electorate by opposing it.

A Budget without anti-avoidance provisions is like Hamlet without the balcony scene. Given the Government's need to increase the tax take, it's not surprising that it is seeking to increase its revenue by taking action against schemes reported under the disclosure regime and consultation to widen the scope of the scheme itself. Additionally, the senior accounting officers (presumably the Finance Directors) of large corporates are to be made responsible for ensuring their reporting systems are adequate for the purposes of accurate tax reporting. Such measures are also likely to be popular with the electorate who are being told by the press that the high-rollers in the City and multinational companies are able to avoid paying their fair share of the tax burden. A side effect of this need for increased revenue is to put pressure on HMRC to increase the yield by all the means at their disposal. We may well see a more aggressive approach from Revenue officers. In this context, a small crumb of comfort exists in the Government's proposal to give legislative backing to a new Taxpayers' Charter. Whether this will be an effective shield for the taxpayer against the executive remains to be seen.

An interesting development is the plan to publish the names of all tax defaulters where the tax lost is £25,000 and over. A taxpayer may avoid such publicity by making an unprompted disclosure or a full and timely disclosure when first prompted. It is therefore a form of legal blackmail. Particular legislation would be needed to get around taxpayer confidentiality and it will be interesting to see what challenges are made under the Human Rights Act 1998. Whilst this proposal may also please the taxpayer on the Clapham omnibus, there is also a proposal that defaulters in cases where the tax lost is £5,000 or more will be subject to more detailed reporting requirements for the next five years (although this is referred to in Press Notice 3, there is no specific Budget Note relating to this proposal.)

One bright spot on the enforcement front is the lack of any mention of income-shifting. In my commentary on last November's Pre-Budget Report, I commented that it was the dog that didn't bark twice. As it's not barked for the third time, I think it can be safely buried. As we have seen from the Bank of England's Monetary Policy Committee, when an organisation which is devoid of ideas does something which doesn't work, it just repeats it, until such time as it can't do it any more. It's rather like pumping the accelerator when the wheels start to skid and ending up axle-deep in the mud. The Chancellor has adopted a similar policy of more of the same. The temporary stamp duty land tax holiday on properties of up to £175,000, due to end on 2 September, is to be extended to 31 December. Last year the Pre-Budget Report announced a three-year carry-back of trading losses for accounting periods to November 2009 or tax year 2008-09. This is now to be extended to November 2010 or tax year 2009-10. The tax deferral scheme is also to be extended, though no additional details were given.

And then, of course, we have the green issues. It may be considered easier to raise taxes by claiming they will benefit the environment, but surprisingly there is no move in this direction. There is, however, over £500m of assistance to be given to build offshore wind-farms (hopefully off the coast of Wales or Merseyside), £400m to encourage low carbon energy and advanced green manufacturing (whatever that may be) and £435m to encourage energy efficiency measures.

I was clearly wrong when I said in earlier articles that there would be a General Election this spring. Gordon has obviously decided to tough it out in the hope the 5th Cavalry, in the form of an upturn in the US economy, will arrive just in time. It looks as if Alistair Darling is stuck with this job for another year.

Trevor Johnson is a senior technical editor with CCH.


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