Page last updated at 16:03 GMT, Wednesday, 22 April 2009 17:03 UK

The big hole in the 2009 Budget

Analysis
By Anne Redston
Visiting Professor in tax law, King's College, London

Anne Redston
Anne Redston

The unanswered question from today's Budget is where is the money to come from.

The big taxes - VAT, income tax, national insurance and corporation tax - were largely untouched.

Instead of the radical Budget required by the huge and growing government deficit, the chancellor has tinkered with the tax system.

He did squeeze the rich, by increasing taxes, withdrawing allowances and cutting pension reliefs.

But government revenues from these changes will be but a drop in the fiscal ocean.

The pensions change, in particular, is likely simply to mean that the rich choose other methods of saving for their retirement, such as farmland, where the tax reliefs remain intact.

This is particularly the case as - in order to comply with EU rules - this Budget has also extended these generous tax exemptions to farmland anywhere in the European Economic Area (EEA).

The chancellor has thus given the mobile rich an enormous new tax shelter which more than compensates for the loss of their pension reliefs.

Protecting revenue

The one area where there is truly radical change is in tax avoidance.

For the first time, HM Revenue and Customs will publicise the names of those who deliberately understate their taxes.

In the UK, tax avoidance is not a national sport, and public vilification of those who wrongly underpay their taxes may provide an extra weapon in the government's armoury.

However, care will be needed: those who are simply confused by the complexity of the tax system must not be not pilloried by this new power.

Holiday home owners have also been treated unexpectedly harshly.

Currently holiday properties benefit from a range of valuable tax reliefs, all of which are to be withdrawn from April 2010.

Thereafter holiday lets will be taxed like other let property. This is also likely further to depress the market value of these properties.

There is a small silver lining for those with overseas holiday homes elsewhere in the European Union or EEA.

They can claim these reliefs until 2011; there is also some scope to claim back tax refunds for earlier years.

Encouraging saving

There are crumbs of tax relief scattered through the Budget's pages.

An increased Individual Savings Allowance (Isa) of up to £10,200 is available for the over-50s this year - but they cannot pay in the extra amount before October 2009, as the banking industry is being allowed time to sort out its systems.

The Saving Gateway - whereby the government tops up savings for those on low incomes - has now been extended to cover people who receive the carer's allowance.

The Saving Gateway is a very generous scheme, so this extension of the eligibility criteria is also welcome.

A number of the changes also make the tax system more complicated: the tapering of allowances and reliefs is difficult to administer, and likely to put further strain on the creaking PAYE system.

The announcement that the government will consult widely on the implementation of the pensions change is thus very welcome

But the most important part of this Budget is what is missing.

The absence of any major increase in taxes will simply defer the pain, perhaps until after the next General Election.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation



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