have increased by more than 0.9% then their tax bill will increase from that of the previous year.
The big losers from changes to exemption thresholds are those aged over 65, i.e. pensioners. The higher exemption threshold for those over 65 will be frozen, and those reaching the age of 65 after 1st January 2017 will lose their entitlement to it. The report quotes a figure of £4 million per annum as the cost of the higher exemption threshold, so clearly, if passed in the debate, through time all tax paying pensioners will see their tax bills rise. The report states that there is an inequitable differential in exemption thresholds which the proposals will remove. To target pensioners, and reduce their living standards in this way, is in my view asking for trouble. The fact that the report’s author can see no justification in allowing a small tax break to those who have already spent their working life paying tax and Social Security contributions is a shocking indictment of society’s attitude to the elderly. I hope that there are enough States members, with wise heads and long enough memories to recall the reasons why the higher exemption was introduced, to reject this proposal.
The next, even bigger, losers are home-owners with mortgages, as it is proposed to remove mortgage interest relief over the next ten years, by reducing the eligibility cap from the present £15,000 by £1,500 per year. The relief is quoted as being “inefficient and counter-productive”, and leads to increased house prices. I could mention horses and stable doors, but that may be a little unfair. Whilst I can see why increasing the size and demand for mortgages whilst limiting the supply of houses, can lead to increases in house prices, I am reluctant to comment further as I am sure that the issue is more complicated and there are others who are far more knowledgeable to debate this one. What I do know is that over the next 10 years this proposal will eventually recover £11 million from home-owners with mortgages, but exactly where over that timeframe their tax bills will rise depends on how much mortgage interest each of them is paying. The annual reduction in the cap increases tax bills by £390. The effect may be long-term, but this is the largest of the tax proposals in this budget, and as such has the largest potential to fall foul of unintended consequences.
The final losers are those currently receiving benefits in kind in excess of £250 a year who will see tax rises of up to £195. The tax free element, currently £1,000 a year, is seen as “generous and inequitable”, and will be reduced to £250. Personally, I cannot see why it was given as a relief in the first place, other than as a sweetener when the taxation of BIKs was introduced. I see no reason why it cannot be removed completely as leaving a small relief in place does nothing to reduce its administration and help to simplify the tax system.
Finally, there are several proposals which are much smaller in impact, and are meant to make the tax system fairer. This is the first budget I have read which is littered with words such as “fairer” and “inequality” in respect of taxpayer views of each other. We are all equal in hating tax, and I have never experienced any taxpayer expressing discontent over the tax affairs of others such that this is now seen as justification for tax changes.
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20/20 The Finance Centre Page 79
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