G ordon Brown's third Budget sounded good. There was lots of
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encouragement for the small business sector, personal tax cuts, and lower national insurance for employers.
Unfortunately, in the small print, the reality of it strikes home. It is very much a "jam tomorrow but very little for now" Budget. Indeed, most people probably feel more relieved about what is not there than grateful for what is.
A reform of inheritance tax was widely anticipated, which many feared would severely limit business property relief This is probably now safe, at least until after the next general election.
The most significant change for small hauliers was the io% starting rate. However, that is not as attractive as it first appears. It does not apply until r April zotoci; it applies only to the first ko,000 of taxable profits with provisions to phase out the benefit over the next 14o,000; and it does not apply to unincorporated businesses.
While many small hauliers might see that as an incentive to incorporate, there are hidden regu
latory costs, particularly in relation to PAYE on the owner's salary, that unincorporated firms avoid.
The extension of the 40% first. year allowance on lorries and other equipment for a further year is helpful, but one-year extensions are too short to allow sensible investment decisions to be made.
Freeze
The freezing of vehicle excise duty on most trucks is clearly welcome, as are the "green" incentives, such as the doubling to D,000 of the maximum VED discount for lowemission lorries, the VED reduction of up to 55% for vehicles engaged in combined road-rail transport, and the fuel duty incentives for cleaner fuels.
VAT changes, apart from an increase in the registration threshold from £50,000 to L5 L000 from r April, are largely anti-avoidance provisions.
Standard Landfill Tax is to increase from the current £7 per tonne to Do from r April, and then by a further D a year until it reaches D5 a tonne from r April 2004. This tax is already having such an effect that an exemption has had to be introduced for inert waste used to restore landfill sites and quarries. Accordingly, these proposed increases are likely to be bad news for the haulage industry.
The Budget headline grabbers were the new ro% personal tax rate from r April next, and the promised reduction to 22p from 23p in the basic rate of tax from 6 April 2000. These are likely to make people feel good, at least in the short term, so will probably give a boost to consumer spending which benefits the economy.
However, when people get their April pay packets they will find that they are paying for 55% of the tax reduction because of the abolition of the 20% tax band. Many will then realise that the abolition of the married person's allowance, mortgage interest relief and the tax relief for maintenance payments (including those under the pre-15 March 1988 agreement) from 6 April 2000 will mean they are effectively financing the entire reduction themselves.
For large companies the imposition of tax on "reverse premiums", where a landlord pays a capital sum to a prospective tenant to induce him to take on a lease, will increase the effective cost of new premises, although it has been dif if ficult ficult to justify such receipts escaping tax in the past.
Many hauliers will welcome the reduction in employers' national insurance contributions (which go up to 12.2% from i April). It will come down to 11.7%, but not until 6 April 2001 However, this is far less welcome when it is realised that this reduction is intended to be paid for wholly out of a new "climate change levy" on gas, coal and electricity used by business. There will be an exemption for energy used by public transport for powering the transport itself, but as the levy will not apply to petrol, diesel or other mineral oils, it is hard to envisage what the transport exemption will cover.
Employers' (but not employees') national insurance will be imposed on all benefits in kind from 6 April z000. Not only does this increase the cost of providing staff benefits, but it is hard for many small businesses to identify benefit payments accurately. These need to be identified for PHD purposes (the form that details to Inland Revenue any benefits in kind received from an employer), but that does not entail judgements on the dividing line between business expenses and benefits, whereas the national insurance charge will require employers to do this.
Changes
The changes to the taxation of employees are a mixed bag. The scale charge for company cars increases from 6 April 1999 for all cars (other, curiously, than those used mainly for private use) but impacts most heavily on cars over four years old. There is also, as forewarned last year, a roughly 20% increase in the petrol scale charge from the same date.
The benefit charge on employees commuting via works buses is removed, provided the bus seats at least 17 people. This effectively limits the benefit to larger companies—and puts small business at a serious competitive disadvantage in attracting staff.
The green policy does not extend to encouraging the provision of bus season tickets but does cover the use of bicycles!
The new, individual learning accounts from 6 April 1999 and the removal of the benefit charge on the provision of a computer for an employee's home use from 6 April 1999 might have been attractive in relation to some employees. But the requirement that the benefit must be offered to all staff to obtain the tax saving is likely to be a significant deterrent to employers.
The abolition of the £200 benefit charge on mobile phones from 6 April is a useful simplification. The pensions earnings cap increases in line with inflation to i9o,600 from 6 April.
The proposed new all-employee share scheme to be introduced next year looks fairly generous, and is another measure that will make life more difficult for the small haulier. In practice, allemployee share schemes are not viable in small companies where an artificial market has to be created for the shares. This in itself can create significant tax problems, and they are not possible for un incorporated businesses.
The more tax-efficient benefits big business can offer its staff, the harder it becomes for small businesses to attract employees.
Overall, the Budget shifted some spendable income from the middle classes to the poor. Readers will have their own views on the fairness of such methods, but what is clear is that cutting taxes for the lower paid, increasing child support targeted primarily at the lower paid, and public expenditure on key public services and the protection of the environment are unlikely to give much of a boost to the economy.
That is hardly good news for an economy hovering on the brink of a recession.
II by Robert Maas