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2010 Budget: Wishlist for private Investors

Monday, Mar 15 2010 by
13

Looking forward to next week's Budget, does anyone have comments on what they expect / would like to see in it to support Individual Investors and investing in general? We are preparing a piece on this at the moment and would really welcome your views. The following elements would presumably be welcome by everyone in the PI community - let us know if you disagree.

  • Restoration of dividend tax credits;
  • Reduction of stamp duty on share transactions;
  • Raising the Inheritance Tax Threshold;
  • Increasing ISA allowances beyond 10.2k

See latest Brewin Dolphin survey on this: http://www.brewindolphinmedia.co.uk/brw/media/pressreleases/2010/2010-03-15 :

47% called for the restoration of dividend tax credits, ahead of raising the Inheritance Tax Threshold (“IHT”) highlighted as a priority by 36% and the reduction of stamp duty by 29%.

What about increasing VAT to shift tax burden onto consumption rather than investment? Is everyone in favour of that? It's perhaps less clear given the macro-economic consequences of such a shift.

And is anyone aware of anything novel being proposed by the Opposition in this area? George Osborne's recent New Economic Model speech talked about restoring a savings culture but the main measures proposed by the policy document seem to be:

  • Raising the Inheritance Tax threshold to £1 million.
  • Raising the stamp duty threshold to £250,000.
  • Ending effective compulsory annuitisation at age 75.
  • Over the longer term, "reversing the effects on pension savers of the 1997 abolition of the dividend tax credit for pension funds" (but not clear how). 

Back to the budget, the big risk for PIs seems to be the risk of a significant increase in CGT given the income vs. CGT disparity. Anything else on your minds?

Feel free to add comments here or email us (to admin @ stockopedia.co.uk if you'd rather keep your thoughts confidential). 

Many thanks,

Dave

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18 Posts on this Thread show/hide all

Fangorn 15th Mar '10 1 of 18
10

I suspect that the budget will hold nothing positive for PI's of any sort.

* Restoration of dividend tax credits;
* Reduction of stamp duty on share transactions;
* Raising the Inheritance Tax Threshold;
* Increasing ISA allowances beyond 10.2k

As to the following elements being welcome, yes concur, but there's absolutely no chance of any of them materialising under this Labour government.

I believe your comment
"Back to the budget, the big risk for PIs seems to be the risk of a significant increase in CGT given the income vs. CGT disparity. Anything else on your minds?"

is a very real worry and it really wouldn't surprise me to see CGT rates raised, possibly to 25% as this would probably not be too controversial. CGT is currently so out of kilter with Income tax one could cynically argue that it has been put this low so that the current crop of MP's have chance to sell their ill gotten property gains on the cheap in the last few dying years of this administration. Anything higher however won't swing. But then again what do this government care and the state of the finances are dire.

As for the Tories. I don't see them doing much either. The state of the country's finances will prevent them from doing so. There will definitely be no restoration of dividend tax credits - that gem has long gone now and there is no going back much as all we prudent people would like it to do so. As to ISA allowance, it might get indexed but don't expect it to increase much over the next five years.

The imminent budget is all rather depressing, given as it will revolve around three themes:

1) Blatantly lying about the true state of this country's financial position.
2) Above inflation increases in tobacco, alcohol and petrol duty yet again.
3) Some unfunded "Bung" to bribe the electorate to vote this administration in for another five years.

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omh 16th Mar '10 2 of 18
6

I think it is a little head in the sand to try and look at what we want from the budget as PIs. It is perhaps part of the problem of burgeoning tax legislation that each individual little area is looked at individually rather than taking an honest appraisal of what is needed and cutting the overall cloth (with as few different taxes/duties/rates etc as possible). I would like to see:

1/. Abolition of National insurance. It is a tax on income, so why not be honest and save the administration costs of having two income taxes?

2/. Removal of the plethora of allowances, credits, exemptions etc etc etc that make everything so complicated, add layers of complexity and bureaucracy, and give scope for evasion and avoidance.

3/. Being really radical....pay EVERY British citizen who lives in the UK a monthly allowance (£1000 sounds good) from the age of 18 until they die. This replaces unemployment benefit, job seekers allowance, family allowances etc and the state old age pension. Simple and cheap to administer, no means testing. Efficient. If you transgress the laws and are fined, an easy way for this to be paid; and if you are jailed then your payment stop for the duration of your incarceration.

OMH

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doverbeach 16th Mar '10 3 of 18
6

It's perhaps less clear given the macro-economic consequences of such a shift.

That applies to most of the things on your wish list! I would have thought that most PIs think that Something Has To Be Done about the state of public finances and so advocating a set of revenue reducing measures is just perverse.

I can see the logic that PIs should think that abolition of stamp duty / restoration of dividend tax credits / raising ISAs would benefit investing, but I find it hard to imagine how any responsible chancellor could seriously contemplate any of them. So why not be honest and say so?  After all, we would all like our politicians to be more honest about what needs to be done, so shouldn't we too try to act responsibly?

And I can't see how changing IHT will have any affect on investing or saving at all. There is zero evidence that it discourages savings - it's just the Tories wanting their supporters to pay less tax.

Increasing VAT would be a hugely regressive move. With large knock on effects on inflation, means-tested benefits, pensions etc

Fangorn wrote:

Increasing ISA allowances beyond 10.2k ....absolutely no chance of any of them materialising under this Labour government.

er excuse me? Have you noticed the large rises in ISAs that this Labour government has introduced?  There are plenty of extrememly good complaints you could make about this govenrent, but being stingy with tax free savings allowances isn't one of them.

db

 

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peterg 16th Mar '10 4 of 18
7

I can't say I support any of those proposed measures. As DB says one of the pressing needs for any government is to reduce the deficit. Reducing government income doesn't seem like a very smart way to tackle that!

Why should ISA allowances be increased? They have already increased substantially. They are largely (entirely?) of benefit to those with cash to spare to invest, so by definition they reduce taxation for those who are not most in need.

Similarly with inheritance tax. I've never managed to understand the obsession many have with IHT. When I die and in all probability leave a large sum in my will, having failed to recycle it into the economy in my lifetime why should some of that not go into public finances to support all the essential services that we take for granted but like to complain about so much? Raising the IHT limit to £1m is yet another measure designed to help those who need it least.

So no, I'd oppose all those, and as a reasonably successful and wealthy PI I object strongly to the assumption that PIs main interest is in narrow tax measures that benefit them at the expense of others.

Peter

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Dave Brickell 16th Mar '10 5 of 18
9

All great comments - keep them coming. Clearly, there's an urgent need for revenue-raising measures too at the current time too and perhaps that eliminates any scope for these kinds of measures. To provide a counter-argument to the idea that PI measures are a matter of self-interest, it's perhaps worth pointing out a few concerns:

  1. In the UK, investment as a share of GDP is the lowest of any G7 country.
  2. The average household saving ratio has fallen from 9.2% in the 1990s to 3.9% in the last decade.
  3. The Association of British Insurers estimates more than 13 million people in the UK are not saving enough towards their retirement
  4. According to the Pension Protection Fund, the shortfall in the UK's 7,400 defined-benefit schemes stood at £179.3bn at the end of May 2009

So, given the gaping pension deficit,  is promoting savings and investment through measures like restoring the dividend tax credit just a parochial concern for PIs?

 

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Thunderstorm 16th Mar '10 6 of 18
2

The abolition of the dividend tax credit made some sense at the time since ACT was abolished so there was no longer anything to off-set. Still, the negative consequences are not to be denied but I see this as much part of our "I want it now" consumerist culture as down to government (in)action. The Labour government deserve some credit for the introduction of ISAs in the first place - sure, there were PEPs/TESSAs but these were seen as elitist.

Have you noticed the large rises in ISAs that this Labour government has introduced?

Really? Apart from last year, I must have missed them. I would welcome a move to indexation of the allowance. Should have been done years ago.

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Fangorn 16th Mar '10 7 of 18
1

In reply to doverbeach (post #3)

That's precisely why Dover I don't envisage any more increases in ISA allowances under this Labour administration - the amount has just been significantly raised from 7200 to 10,200! That in my view is it, thewre will be no more increases further for a long time - the country's finances just won't be able to handle any more.It wasn't a complaint about their stinginess, merely there will be no more such increases.

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Fangorn 16th Mar '10 8 of 18
2

In reply to Thunderstorm (post #6)

With regard to your "The Labour government deserve some credit for the introduction of ISAs in the first place - sure, there were PEPs/TESSAs but these were seen as elitist."

Why do the Labour governemnt deserve credit for the introduction of ISA's - there are merely a continuation of the Pep/Tessa savings culture introduced by the Conservatives.They aren't a new product, merely the same, just repackaged & labelled as something different!

But it's great they kept the savings culture going that's for sure.

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djpreston 16th Mar '10 9 of 18
7

In reply to Fangorn (post #8)

Just throwing my 2p into the ring and basically it is the smae tale of despondency.

Any hope fo their being anything for the saver is cloud cuckoo thnking IMO.

Personally Im expecting CGT to go straight back up to 40%. I never understood the logic for the move to 18% as it just opened up the loophole of creating capital gains as opposed to income. Taxing income and capital gains at the same rate is only logical if you want to avoid the loophole.

Heck, why not go a stage further and just be honest with us. As someone else said, abolish NI and add it to income tax? I thought the cynical announcement that "we wont raise income tax" by Labour was pathetically undone by the 1% NI surchage. Hmmm, that'll be a 1% tax on income but its not increasing income tax then?

Nope, Im a huge believer in flat tax systems - no allowances for CGT etc. All income be it capital, interest or earned income is lumped together and anything over say £15,000 is taxed at 35% (or whatever figure). Clarifies the situation, reduces the vaste waste of administration etc. Okay so it woudl do away with a raft of HMRC employees and accountants but thats less waste and bureaucracy - oh dear how sad.

The main problem is that the tax take is moving too high. Laffers curve shows how there is an optimal point beyond which raising tax reduces the amount ultimately received. How about reducing taxes on companies to draw more companies into (or back to) the UK as opposed to seeing them leaving for lower tax climes as is happening now? Turn Britain into a low tax haven for companies?

As for the defined benefit schemes, they are all dying out now anyway. Lets face it, the govt schemes need closing out as well. Lets end this nonsense of paying with current income. Put the local govt and civil service on the same footing as private sector workers. Pay a set contribution to a private scheme. With public sector salaries now equal too or higher than private sector, there is no longer a need for the "reward" of an index linked pension at the end of it. IIRC, a £30,000 salaried civil servant retiring on full benefits woudl get £20k pa index linked and that woudl need a fund of somewhere around £600k. Thats just one middle or lower echelon member of the vast bloated public sector. No the wonder most local council payers see 20% plus of their council tax payments go towards paying pensions for local govt......

Rant over. A pint in the pub is calling  - if I can get to the bar given the invasion weve seen for the Festival.

Fund Management: European Wealth
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Fangorn 16th Mar '10 10 of 18
1

In reply to djpreston (post #9)

 

Good to see I'm not alone on the despondent front!

Otherwise I'd be concerned I was being too contrarian and heading for a pummeling :)

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kinkell 16th Mar '10 11 of 18
1

In reply to djpreston (post#9)

I fear you miss the point: eliminating waste by reducing public service jobs is not the name of the game for GB who prefers increases to reductions in his constituency.

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djpreston 16th Mar '10 12 of 18
7

In reply to kinkell (post #11)

I fear you miss the point: eliminating waste by reducing public service jobs is not the name of the game for GB who prefers increases to reductions in his constituency.

Nope - I dont miss it at all. Thats always been the Labour mantra, which is why productivity and enterprise has been stifled by bureaucracy and higher taxes every time they get elected and why its always left us basically broke.

To be fair to clown, I mean Brown, he did start out with reasonable (on the face of it) proposals but quickly succumbed to the old ways and started running around like a chav with a new credit card. The rest is history.

My fear (and its one Ive been saying for a while) is that Clown will somehow wing it on fears by his jerrymandered electorate hardcore that they will lose their gravy train.....

Fund Management: European Wealth
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Dave Brickell 22nd Mar '10 13 of 18
6

Hi All, Ed is going to be blogging live on the Budget on Reuters with some other guests from noon this Wednesday so please feel free to tune in.

Here's the link for the Reuters site - http://live.reuters.com/Event/Budget_2010_with_Reuters_UK

If you want your views heard, feel free to share them here either before or live on the day so that we can make sure that they are factored into our commentary.

This live debate will began officially at noon GMT on Wednesday, March 24, 2010. Guest contributors will include: Claer Barrett, associate editor of Investors Chronicle; Mark Bolsom, head of the UK trading desk at Travelex; Ed Croft, CEO of Stockopedia; Anthony J. Evans, assistant professor, ESCP Europe Business School; Nick James, Fresh Business Thinking; Chris Maddock, head of private clients at Vantis; Thomas Story, tax director, BDO; Dominic Swords, business economist, Henley Business School; Joe White, Gandi; Julia Whittle, principal and head of international Punter Southall; Danny Wootton, UK Innovation Director at Logica.

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Dave Brickell 22nd Mar '10 14 of 18
7

And here's the Reuters Blog Piece we wrote for it based on the above discussion - tell us what you agree and disagree with. Please keep the ideas and comments coming, as we want the views of Stockopedia investors to be heard!

In his recent ‘New Economic Model’ speech,  Shadow Chancellor George Osborne rightly emphasised the need to restore a savings culture in this country. Investment to GDP is the lowest of any G7 country.

The Association of British Insurers estimates over 13 million people are not saving enough towards their retirement.

The gaping pension deficit to be funded by future generations means that savings and investment levels are not just parochial concerns for the investment community.

The household saving ratio has fallen from 9.2 percent to 3.9 percent in the last decade. The government deserves credit for increasing ISA allowances but there’s much more that could be done.

In a recent Brewin Dolphin survey, 47 percent of private investors called for the restoration of dividend tax credits, 36 percent for raising the Inheritance Tax threshold and 29 percent for the reduction of stamp duty on share transactions.

We can also attest to the evident need to cut the tax and administrative burden on small businesses, long described by politicians as the locomotives of the economy but with little to show for it.

Nevertheless, when we spoke to investors on Stockopedia, the general view was that this coming budget is just not the time for tax cutting.

The unfortunate reality of our macro-economic predicament means that there’s very little left in the coffers and there’s an urgent need for tough but unpopular decisions to balance the books by reining in public spending and increasing taxes.

The plea from our users was for the government to focus immediately on reducing the ballooning deficit and on simplifying the tax system.

Instead of the tinkering to assuage special interest groups, it was felt that an honest appraisal of our dire situation was needed and a collective cutting of the cloth with as few different rates as possible.

The markets were not impressed by December’s pre-budget report  and nervous investors are looking for a clear path from Chancellor Alistair Darling towards restored macro-economic stability. To reassure them, this budget should provide for:

1.      An immediate commitment to making the tough decisions needed to cut government expenditure;

2.      A medium term commitment to addressing the savings gap in the UK economy

3.      Equitable sharing of the burdens from increased taxation – investors and savers are willing to share the pain in this time of crisis provided that this is done in an even handed manner.

4.      Reduced complexity to remove the plethora of allowances, credits, exemptions that add layers of bureaucracy and give scope for evasion.

5.      Easing the burden on entreprise by cutting administrative red tape. Why not abolish National Insurance? It is effectively a tax on income, so let’s just be honest about it and save the bureaucracy and administration of two income taxes.

If these measures are not introduced in this week’s budget, precious time will be lost. The new government, assuming there is one, will certainly have its work cut out trying simultaneously to address the deficit, cut back on spending, streamline the tax regime, while introducing incentives to encourage savings.

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emptyend 22nd Mar '10 15 of 18
4

In reply to Dave Brickell, post #14

I'm sorry to say that Wednesday's Budget will be a straightforward piece of electioneering nonsense, that will rapidly be binned by WHICHEVER new government gets elected in May. Savers can expect nothing and electors can't even expect to get an honest assessment of what should be done.

There might well be a number of populist "progressive" tax measures designed to "soak the rich" (subtext bankers) and no doubt there will be a nod towards deficit reduction measures - for 2011! But the painful truth will have to wait for the June Budget!

I can't see either Budget, though, doing anything for savers - even though the public would like to see some radical changes and simplifications in the overall tax regime (eg National Insurance etc). The only people who can look forward to the Budget are those special interest groups in maginal constituencies - and they will only be concerned to see how much of a bribe this last (?) Labour Budget contains.

There are times when one can have rational and sensible expectations about a Budget - but sadly not this time!

ee

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Fangorn 22nd Mar '10 16 of 18
2

In reply to emptyend, post #15

I think you're spot on EE.

The only people I can see looking forward to the budget, if they even have a clue there is one due, is Labour's clientele...

for the rest of us, who will be expected to foot the bill, there is nothing but misery.

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Edward Croft 24th Mar '10 17 of 18
2

Just a reminder that we'll be blogging on 'Reuters LIVE' during the budget today.
If you can, join us on... http://live.reuters.com/Event/Budget_2010_with_Reuters_UK ...
We are aiming to get the points you've all mentioned above discussed in relation to any changes in the Budget.
We'll be live from 11.30am while the Budget starts at 12.30.

Blog: Follow @edcroft on Twitter
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Fangorn 24th Mar '10 18 of 18

Ouch. Cider drinkers wont be happy. 10% above inflation.Yikes.

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