"The prick of the anaesthetic rather than the pain of surgery"
23 June 2010
Jeremy Beckwith, Chief Investment Officer at Kleinwort Benson, one of the UK’s leading private banks, has 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 commented: "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 20 October – 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, has also analysed the measures that have been introduced commenting: "The VAT hike to 20% that will be implemented on 4 January 2011, to allow customers the benefit of the January sales rush, is expected to generate up to £13 billion on an annual basis by 2015 and will be an important tax revenue for reducing the UK deficit.
"Although the Capital Gains Tax rate has been increased it was widely expected that it would be aligned with income tax rates, and at 28% for higher rate taxpayers it is significantly lower than some of the figures that were rumoured in the past few weeks. The Chancellor acknowledged that any rate above 28% would be unlikely to generate further significant tax revenues therefore it is likely this rate will remain for the coming years. 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.
"The announcement to reduce the main rate of Corporation Tax to 27% from 1 April 2011 and annually by 1% for the next three years to take it to 24% is to be welcomed and coupled with the measures to increase the Entrepreneur’s Relief from £2m to £5m of qualifying gains at 10% it is clear that the Government wants to encourage manufacturing growth and revitalise business across the United Kingdom. Many of our clients at Kleinwort Benson 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."
- Ends -
For media enquiries or to speak to either Jeremy Beckwith to discuss the fiscal impact of the measures or Jeremy Croysdill to analyse the detail of the tax measures introduced please contact:
Kleinwort Benson Rachel Butler +44 (0) 20 3207 7239
+44 (0) 7957 427066
Phoenix Financial PR Gordo
n Puckey +44 (0) 20 7947 2856
+44 (0) 7799 767468
Notes to Editors:
About Kleinwort Benson
Kleinwort Benson is one of the most historic names in British banking with roots dating back to the 1790s. The Bank provides a range of bespoke wealth management and financial services solutions to private individuals and corporates - completely tailored to their individual wealth planning needs. With
an offering spanning investment management, tax and banking, trust and fiduciary services, the Bank provides its clients with a truly holistic service. Operating from the City of London, the Channel Islands and a network of regional offices, and via a range of networks across the globe, Kleinwort Benson is always able to be close to its clients, wherever they are in the world.
Kleinwort Benson is one of the first major banks to have established a presence in the Channel Islands, nearly 50 years ago, and the Bank is consistently ranked as one of the top ten providers of administration and custodian services, working with fund managers across a wide range of traditional and alternative asset classes.
Kleinwort Benson is the brand name of Kleinwort Benson Private Bank Limited. Kleinwort Benson Private Bank Limited is authorised and regulated by the Financial Services Authority, registered number 119269 and is a member of the London Stock Exchange, APCIMS and the British Bankers Association. Kleinwort Benson Private Bank Limited is a company incorporated in England and Wales with company number 2056420 and VAT number 244733560.
Tax treatment depends on individual circumstances and is subject to change. The Financial Services Authority does not regulate Tax business. Kleinwort Benson is a member of the Commerzbank AG Group..
Registered Office 30 Gresham StreetLondonEC2V 7PG. Telephone +44 (0) 20 3207 7000. Telephone calls may be recorded
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