Budget a precursor to autumn pain – Kleinwort

THE EMERGENCY budget is a significant achievement, but signals a lot more pain to come from the autumn Spending Review, according to the chief investment officer of Kleinwort Benson.

Jeremy Beckwith recognised the achievements of the new Coalition Government’s first budget, but likened it to that of an anaesthetic, with more pain to follow.

He said: “At first sight, the Chancellor has adroitly managed to satisfy both halves of the governing coalition.

“To the right (and the financial markets) he has delivered a credible budget deficit reduction package that leaves a balanced budget by the end of the Parliament, with only one significant tax increase – VAT rising to the European average of 20% – a smaller than expected increase in Capital Gains Tax, and a planned reduction in the scope of the welfare system.

“To the left he reinstates the earnings link to pensioners, and takes almost a million earners out of the income tax net completely. To the tax purists he has also achieved an alignment of the income tax and national insurance systems by co-ordinating the thresholds.

“These are all notable achievements for a first budget.  However, the pain that was delivered by this budget is akin to that of the anaesthetic – it is merely the framework of Government spending and budget deficits that flow from the planned levels of spending.

“The real pain will be felt on October 20 – the date of the Spending Review announcement. The Chancellor acknowledged that the previous Government’s plans amounted to a 20% reduction in the departmental budgets in non-protected areas such as health and education.

“For this Government only health and overseas aid are protected from spending cuts, which means that with the extra spending cuts announced yesterday, the reduction in departmental budgets now rises to 25% over the life of this Parliament. This will be brutal surgery.”

Jeremy Croysdill, head of tax at the private bank, whose Birmingham office is in Victoria Square, said: “Now with two rates of CGT, it will make capital gains reporting in the current tax year a minefield for individuals who have, for example, significant property or investment portfolios.

“It will be even more important to keep up to date records to ensure that reporting requirements are met as effectively as possible.

“Many of our clients are entrepreneurs and taken together the announcements on the reduction in Corporation Tax rates, and the enhancements to entrepreneurs relief, is fantastic news for them and much better than they were expecting.

“The statements made on the general anti-avoidance rule, and whether it should be strengthened to develop a sustainable response to avoidance risk, has been discussed by the UK tax profession for years.

“It has been vehemently criticised in this country and would need to be drafted very carefully so as not to catch mainstream tax planning.”