The pre-budget airwaves are quiet... too quiet

Is that because no news is good news?

The pre-budget airwaves, normally teaming with feverish speculation, are ominously quiet. There doesn't even appear to be a 'book' on how long the Chancellor will speak for (or not that I have come across yet at least).

Unless George can produce the ubiquitous (most likely scrawny and headlight-dazzled) rabbit out of his (or anyone else's) hat, we think the Budget will aim principally for stability, with few big changes and a broadly pro-business stance to keep encouraging growth. In terms of predictions as they might affect those in the private wealth industry, we can predict what he won't do (and a little of what he might), with some confidence:

Inheritance tax won't be abolished and the Nil Rate Band won't be increased (OK - we already know that). Tinkering might involve a resurrection of the well-rehearsed fear that the Chancellor might abolish the provision whereby you can vary a will or intestacy within two years of death (usually to take advantage of an exemption from inheritance tax for gifts to charity, spouse or relief for business or agricultural assets), or even perhaps the seven-year rule for gifts, but we think this is unlikely. Given that it raises little in terms of revenue we don't think the rate will be changed either.

Capital gains tax: The extension to non-UK individuals could have been made when liability was extended to non-UK corporates in relation to real property. Although some see this in itself as an anomaly, the rates have been tinkered with over recent years without much evidence in terms of overall increase in the UK 'tax take'.

Income tax: A further reduction from the incoming 45% is unlikely, as are any major changes to other rates or (we hope) further meddling with pensions. The personal allowance could rise to £10,000 or even more, to ensure that those on the minimum wage (around £11,200 p.a.) do not pay tax.

Mansion tax: Although it has been much discussed, this seems unlikely, as it has never had Coalition Government support. The mooted tax would be primarily a tax on London and the South East, and many of those affected, especially at the introductory level of £2 million, may well be unable to pay the tax (particularly those who inherited their properties, are already mortgaged to the hilt, and/or have lived in the same house for many years).

Tax avoidance: Given the introduction of the General Anti-Avoidance Rule, which is extremely wide in its application, we struggle to see what else can be bolted on to HMRC and HM Government's ever increasing arsenal.

So that leaves us with very little in terms of predicting what he might come up with. My own wish list would include:

- a flat rate of tax (including both income and capital gains);

- the abolition of inheritance tax; and

- a four wheel drive car tax - a much better indicator of surplus wealth, better for the environment, easier to collect than a mansion tax and a positive benefit for those who have to contend with them in urban settings.

Sophie Mazzier is counsel at private client law firm Maurice Turnor Gardner LLP

This article first appeared at Spears magazine.

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump