charities and their donors, including many in the City, George Osborne’s latest and most spectacular u-turn comes as a perfect Jubilee weekend present. The Chancellor had announced in the Budget a limit of £50,000 or 25 per cent of income, whichever was higher, on the amount individuals could donate in a tax-deductible fashion; the idea was unceremoniously dumped yesterday after pressure from philanthropists, furious at being portrayed as tax avoiders by a government which had previously encouraged charitable work and the Big Society. It is a major humiliation for the Chancellor, who has also partly u-turned on his pasty and caravan tax plans. Pressure groups will feel emboldened to try and derail all measures in future Budgets. These will be seen as starting points, working papers even, rather than final pronouncements on financial matters.
But even though this was by some accounts the government’s thirtieth U-turn, more are needed. Other, damaging tax hikes masquerading as reforms have not been scrapped. Osborne is pressing ahead with a cap on other income tax reliefs, including for trading losses and interest relief for borrowing (this applies to individuals who take out loans in their own name to help their business).
Astonishingly, these actually target those setting up and running unquoted businesses and are bound to throttle expansion and job-creation plans.
There is an overwhelming argument to stop promoting debt in the tax system, and to make its treatment similar to equity, even though Osborne is constantly dreaming up new ways to subsidise loans. But it makes no sense to eliminate interest relief on loans to companies while simultaneously complaining about the lack of finance for small start-ups. Once again, this is the very opposite of joined up government.
The real scandal, however, is the curtailing of loss relief: this makes no sense on any measure. Any abuse of these allowances by a minority should be stopped – but the principle of paying income tax on actual, positive income, not losses, is a basic tenet of the tax system. A self-employed worker who sets herself up in year one, incurring £60,000 in net start up losses, and then earns £60,000 in year two, would currently not pay any income tax over that period as she would have earned nothing overall. Under Osborne’s plans, however, she will pay tax – on zero net income. This is as outrageous as it is stupid.
Osborne has also previously increased income tax relief for Enterprise Investment Schemes (EIS), especially for those financing angel start-ups – yet his assault on loss relief will cancel out much of this help and reduce the flow of EIS investments. I’m no fan of these sorts of fiddly schemes as I want a drastically lower and simpler tax system – but Osborne loves them. Yet this Budget is stealthily reversing the effects of his previous Budget’s policies. Either he doesn’t fully understand what he is doing – or economic policy in this country truly is a contradictory muddle.
HAPPY DIAMOND JUBILEE
In an era where duty has gone out of fashion, the Queen stands out as an extraordinary example of selfless dedication. A public servant like no other, through good as well as bad times, she is a remarkable symbol of Britain’s continuity, stability and unity in an ever-changing world. She deserves all of our heartfelt thanks. For those of you attending the Investec Derby, we hope you enjoy our special Saturday edition – and we wish all our readers a great Jubilee weekend.