A budget that avoids serious pain and so ducks the question of how to pay for lockdown

News Letter editorial of Thursday March 4 2021:

Thursday, 4th March 2021, 9:00 am
News Letter editorial

Few people reading this, or in society at large, will be hit by yesterday’s corporation tax rise so the tax aspects of the budget will not affect them much.

The chancellor, Rishi Sunak has frozen taxation allowances and bands.

This means that for several years those bands will not rise with inflation, bringing more and more people into tax, at the lower levels of incomes, or into the higher bands of tax, at the higher levels of incomes.

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It is the same for capital gains tax and inheritance tax.

The latter tax is a particularly loathed one among prudent families, who feel that they have saved hard over a lifetime while paying multiple taxes, from income tax to national insurance to stamp duty to rates to fuel duty and various other levies, and then have to pay again on death.

In fact, inheritance tax is widely misunderstood and a tax that few people pay. While the rate of tax is 40%, the first £325,000 in an estate is tax free. A couple can give away at least £650,000 tax free and more if their home is worth £350,000 or more, in which case the first million is exempt.

Thus a very small proportion of estates pay inheritance tax, and in Northern Ireland the number of people who pay death duties is even lower, because property prices are far lower than southern England.

And yet yesterday’s budget will still hit the thrifty in NI due to the creeping encroachment of taxes via the freezing of allowances so that they do not keep pace with inflation.

The saving classes could be hit another way: while the extension of the furlough scheme to the autumn is most welcome, and a reminder of how fortunate NI is to be in the wealthy UK, there is a real danger that the flooding of the economy with fiscal support will lead to a sharp rise in inflation.

That will erode the value of savings.

Savers have already been hit hard by low interest rates post 2008.

Money in the bank since then has not kept pace with living costs.

Yesterday was a budget that largely ducked the thorny question of how the UK will pay for the vast cost of lockdown.

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Alistair Bushe