Alistair Darling's Pre-Budget Report (PBR) has thrown up all sorts of interesting issues and on two points I find myself questioning the Chancellor's judgement.
For starters, has Darling thought about the implications of raising National Insurance (NI) contributions for those businesses that are already stretched?
The third most -used word in Darling's PBR speech was ‘tax' and this is exactly what the increase in NI contributions will be; a stealth tax on Middle England as those on £20,000 a year or less have been specifically excluded.
From April 2011 employer and employee rates will all rise by 1% - the 0.5% increase announced in the last Budget coupled with the 0.5% announced in the PBR.
This increase will undoubtedly add to the burden that businesses face, especially for those that are already struggling in this current economic climate.
For small adviser firms or even mid-to-large sized firms who have invested in back office staff to improve the service clients are getting this increase will hit them and their finances hard. Capital that could have otherwise been channelled towards development, re-invested into their companies and even the employment of additional staff will now be siphoned off and into the treasury coffers.
However, Labour has played a clever political game as this does not come into effect until 2011 after the election has passed. The implications of this rise need to be re-addressed as this is essentially a tax on employment, when levels of unemployment are currently so high. Why is the government making things worse rather than attempting to get the unemployed back into work?
For those affected by this increased burden salary sacrifice schemes will undoubtedly look more attractive. This, however, brings me onto my second issue with the PBR - pensions.
The Chancellor announced that higher rate tax relief will be restricted for those earning over £130,000 now in the PBR, whereas it was previously restricted for those earning over £150,000 in the Budget.
The key here is that the restriction is based on total income primarily, however the individual is allowed to pay in a restricted amount of £20,000 pa and still receive the full higher rate relief. Darling's prediction was that these new rules will effect an extra 85,000 people; a conservative estimate by any standard.
Any existing contractual arrangements will not be altered relieving those that have a monthly or even yearly contractual amount paid in will be in the clear. However, pensions at the best of times are not clear for the end consumer to understand and now altering the changes that the Chancellor previously proposed will make the whole process more complicated and discourage a nation of already reluctant savers to shy away from providing for themselves in retirement.
Surely the Government has a responsibility to make pensions as attractive and simple as possible in order to encourage those who need to provide for themselves in later life with adequate resources.
Apart from anything else those that are unsure of their wage year on year, who should be most encouraged to save for the future, with no contractual payment process will be the ones penalised with this reduced rate of tax relief.
Incentivising pensions would make financially-responsible sense and this is just what the PBR has missed.
Sheriar Bradbury is managing director of Bradbury Hamilton
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