All the things I would do if I were Chancellor
Do you ever dream in your wildest moments of being Prime Minister for a day? Or what it would be like to be the Queen as she goes about her duties? Or even the eccentric Duke of Edinburgh?
My recurring dream – or nightmare in the eyes of some of my friends – is to be the Chancellor of the Exchequer. What a thrill it would be to preside over government department spending budgets (I only control the personal finance budget at The Mail on Sunday) and to sit before the House of Commons and deliver the annual Budget.
I certainly have some strong thoughts on what any Chancellor should be doing to make life a little more tolerable for the marvellous citizens of this country.
First things first…
For a start, if I were Chancellor, I'd sort out higher-rate tax. When Chancellor Lawson (now Lord Lawson of Blaby) introduced 40% tax 26 years ago, it was a tax that only one in 20 people paid. But today, 4.6 million people pay it (about one in six taxpayers) with the higher rate kicking in once a taxpayer's income hits a threshold of £41,865.
It's no longer a tax for the rich but for ordinary hard-working people – nurses and teachers in senior positions, for example. It was never meant to be this way.
The Office for Budget Responsibility, an independent public body set up to scrutinise the country's public finances, says that unless the threshold is raised significantly in the near future, 9.2 million people will be paying 40% tax by 2033.Together with the 1.7 million that will be paying additional-rate tax of 45p on earnings above £150,000, it means that a third of the workforce could be paying higher-rate tax or more.
The Prime Minister recently put pressure on the Chancellor to raise the higher-rate threshold by stating he would "love" to see it lifted. And even Lord Lawson has said the threshold needs raising. If I were his Chancellor, I'd make it a priority.
Stamp duty is also in massive need of an overhaul. I have never understood why stamp duty is applied in the way it is. It is simply unfair that someone buying a house worth between £125,000 and £250,000 pays stamp duty of 1%. But if the house is worth £251,000 (or
any value between £250,000 and £500,000), it jumps to 3% on the entire amount, eventually rising to 7% on property transactions above £2 million.
Paul Johnson, director of influential think tank the Institute for Fiscal Studies, describes stamp duty as a "very bad bit of the tax system" while Stephen Herring, head of taxation at the Institute of Directors, says it is "ridiculous" that stamp duty has not been reformed.
Both are right. Stamp duty in its current form inhibits job mobility and prevents people from moving up the housing ladder as they make a success of their lives. With average house prices now standing at £262,000 – nearer £492,000 in London – stamp duty is the homebuyer's curse.
If I were Chancellor, the nil-rate threshold would be raised to £500,000. I would then scrap how it is now charged and instead apply the tax in bands – say 1% on property values between £500,000 and £750,000, then two per cent for properties between £750,000 and £1 million, and a higher rate on any value above that figure.
Finally, I'd lift the nil-rate threshold for inheritance tax from its current level of £325,000 (a level it's been frozen at since 2009). Before the last election, the Conservative Party pledged to raise it to £1 million but that went out of the window as a price for coalition government. A threshold of £1 million seems reasonable enough to me.
There is more I would do - bring in flat-rate relief on pension contributions, for example. But there is only so much a man can do in a day.
If only I were the Chancellor of the Exchequer.
Dream on Prestridge!
Jeff Prestridge is the personal finance editor of the Mail on Sunday. Email him at firstname.lastname@example.org
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Office for Budget Responsibility
Formed in May 2010, the OBR makes an independent assessment of the public finances and the economy, the public sector balance sheet and the long-term sustainability of the public finances. The OBR has four man priorities: to produce two forecasts a year for the economy and public finances, to judge the progress the government has made towards meetings its fiscal targets, to assess the long-term sustainability of the public finances and to scrutinise the Treasury’s costing of Budget measures.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.