Imagine the Queen makes an unprecedented political intervention. Unimpressed with both Rishi Sunak and Liz Truss, she appoints you as Prime Minister.
In your opening speech as our nation’s new leader, are you going to argue for higher or lower taxes?
One of your special advisers tell you that The Office for Budget Responsibility forecasts that the government’s tax take will soon account for 36% of GDP, the highest since the 1940s.
Although National Insurance thresholds have just increased, the combination of freezing other tax thresholds and inflation is pushing more people into higher tax bands, meaning the government will receive more tax revenue. With fuel prices so high, the government is collecting far more than previously predicted from petrol and diesel duties too.
So the government’s tax take is already high. But should it be higher?
The NHS appears to be creaking at the seams, the poorest in society are struggling to pay their bills, the North / South divide is widening. And military spending needs to increase for obvious reasons. Would cutting taxes stoke short-term inflation even more?
Or should taxes be lower?
Your other special adviser tells you to cut taxes so that companies invest more, expand, and hire more employees or relocate to the UK if it was an attractive place to do business. All that PAYE and corporation tax and the government collects more cash that it can redistribute.
Or maybe you’re a revolutionary PM and just want to rip up the tax and spend rulebooks and start again!
This is a tough decision, and you’ll probably only know the correct answer looking back in five- or ten-years’ time.
Even if taxes are reduced, with an ageing society to support, will they be materially lower? Unlikely, I’d wager.
Whether you are Prime Minister or Joe Public, you need to focus on what you can control, and your personal finances clearly need to be as tax efficient as possible. This isn’t always something you can do quickly, and you can make a big difference being tax efficient year in, year out.
I’ve just submitted mine and my wife’s tax returns for the 2021-22 tax year and, all things being equal, the tax now due is noticeably higher than the year before. The slow creep of allowances and thresholds being frozen is definitely having an impact on me, and likely you too. And all this due to a Conservative government… what might a Labour government do!?
Some taxes are unavoidable, stamp duty buying a house, VAT on purchases, fuel duty etc. But income tax, capital gains tax, and inheritance tax can be planned for and there is a lot you can do.
Your own unique circumstances will determine which options optimise your tax position, and rates, allowances, and reliefs keep changing so it’s important to keep your planning under ongoing review.
I’m doing all I can to keep my affairs as tax efficient as I can. If you need any help doing the same, please pick up the phone and call either me or Adrian.