David Cameron pledged to trim income tax by £7bn in his address to the Conservative Party conference this week.
To achieve this he wants to increase the basic personal allowance to £12,500 and increase the income threshold at which earners pay income tax at 40%, to £50,000. On the face of it, good news, but before you rush out to celebrate, and advise your clients of the impending tax reductions, let’s take a look at the detail…
The Prime Minister implied that the full benefit of these reductions would be completed by 2020. Further, his aids (when tackled about “where is the money coming from…”) added that the reductions were not yet fundable by existing cost savings, but based on the present Government’s track record, the pledge would be fulfilled.
The same sort of promise, a pledge, was made by George Osborne in his keynote speech, when he said he would scrap the 55% tax charge on inherited pensions, partly funded it has to be said by freezing benefits for two years.
A common dictionary definition of the word pledge is: a solemn binding promise to do, give, or refrain from doing something.
It is unlikely that either the Prime Minister or the Chancellor intended this level of commitment and that what we are seeing is the beginning of election spin.
If clients ask if the tax savings promised can be relied upon, clearly, the answer is – they can’t. We will, as practitioners, have to sit and wait as the legislative changes start to unfold, if in fact they do. The first significant announcements should be made in the Autumn Statement later this year when pledges will be more clearly linked to future legislation than the present need to please the party faithful or win votes for the general election.