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Half a story

If you stop reading Orwell's 1984 half way through, you can easily conclude that it's quite an optimistic little tale about small successes in the face of totalitarianism. And, in the middle of the Atlantic, passengers on the Titanic were happily wiring the folks back home variations on "weather lovely, wish you were here". The point is that half a story can give a rather misleading impression: you need to know how it ends before you make any sensible judgement. And that is the problem with the Chancellor's budget statement: in a few weeks we shall certainly have a new Parliament and perhaps a new government. With a comprehensive spending review promised by one of the parties and an emergency post-election budget by the other, today's budget is most definitely half a story and it would be foolish to draw too many conclusions from it.

So: what is in the "story so far"? Of course, we have the imminent arrival on 6 April of the pointless, damaging and counter-productive 50% rate (not to mention the devious 60% rate on income between £100,000 and £113,000) introduced in the confident expectation (which unfortunately seems to be justified) that the Conservatives would be too pusillanimous to reverse it. In the same spirit of nibbling away at the aspirational middle classes the Budget Statement now adds the certainty of no increase in the Inheritance Tax threshold for at least the next four years; and a 25% increase in Stamp Duty Land Tax (from 4% to 5%) for residential properties costing more than £1 million, albeit from April 2011. First-time buyers see SDLT on properties costing up to £250,000 reduced from 1% to 0% which is no doubt better than increasing it but is hardly going to set the market alight. Perhaps the most likely effect will be to allow prices to harden since purchasers will have a few pounds more to spend!

Businesses will be pleased to see the doubling of the Annual Investment Allowance to £100,000: this will mean that expenditure on plant and machinery will be fully tax-deductible for most owner-managed businesses: this also sharpens the differential between investing in something which is treated as "plant and machinery" (with full tax write-off) and investing is other capital assets (with, normally, no tax relief whatsoever). And businesses will be disappointed that one of the few Conservative tax policies which the Chancellor has not adopted is the commitment to revisit the 1% NIC increase which will come in from April 2011.

Perhaps surprisingly Capital Gains Tax remains (for the time being at least) at 18%; but don't bank on it staying there for very long after the election. Completely unexpected, but welcome, is an increase in CGT Entrepreneurs Relief to £2m from 6 April 2010. So entrepreneurs whose pen is poised over signing a sale agreement (and whose gain exceeds £1m) might very well want to consider holding off for a few days and doing the deal after Easter.

So, as they say on the television: that's all for now - join us after the break for Part 2...