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THE DTI PUBLISH a fact sheet on faulty goods and the Supply of Goods and Services Act 1982. In it they say that
'Wherever goods are bought they must "conform to contract". This means they must be as described, fit for purpose and of satisfactory quality.'
Once the date was finally announced, I ordered a Pre-Budget Report document pack from the Government News Network, which was handling the distribution on behalf of the Treasury. Now, there is no specific description of what the pack is meant to contain, and the order form does say that 'HM Treasury reserves the right to vary the content of the document packs without prior notice'. But the Treasury knows the purpose for which the packs are purchased — the purchasers want to prepare instant responses to the Chancellor's statement. That purpose is implicit in the contract; in fact it seems to me to be emphasised by the reference to when the packs can be picked up (immediately after the Chancellor sits down) and the note that 'HM Treasury and GNN will endeavour to have the packs distributed as quickly as possible'.
Missing, presumed …?
For reasons explained below, I went and queued up personally for my pack. It looked a fairly chunky package, so I assumed that there would be enough to write about. I took it to a pub, ordered a soft drink (only Chancellors are allowed whisky), and opened it.
The pack included an index of documents to be issued in respect of the PBR. In total there were 58, 54 of which were stated as being issued on 5 December. Of those, only nine were listed as being included in the pack. One further document was handed out with the packs on the day. Totally missing were all of the HMRC documents detailing the changes to tax — 25 documents that were in effect technical notes, and nine sets of draft legislation.
Now it is of course true that all of these were available for download on the HMRC website, and the reliability of downloads on Budget and PBR days has improved dramatically since the early days. But if I'd wanted to download all the documents I would not have ordered a pack. My plan was to look at it on the way to the riverboat that would take me to the CIOT 75th anniversary celebrations at the Globe; in fact I had to go back to our London offices to download the documents that I needed to review before Tuesday morning (when we put together the Comment piece in last week's magazine) before going on to the reception.
If I pay for a Pre-Budget or Budget pack, I ought to be able to rely on getting all the main documents I need, to understand the detail of what is proposed. Experience has led to lowered expectations, because there almost always seems to be something missing, or a document that is coming out the following day, but I can never remember a pack that was as useless as this one.
Money-back guarantee
So I want my money back. I have written to the Government News Network and copied in the Treasury and HMRC saying that I want the £48 I paid for the pack refunded. Personally I think I am being very generous in not charging them for wasting my time in going to pick the pack up, and demanding that they pay for a riverboat cruise, but I'll settle for a refund.
I hope I won't be the only one who asks for one. These packs are the equivalent of a pig in a poke; we have to rely on the Treasury to play fair and include everything in them that is needed. Alternatively, they can be up front about it and say that they are only going to include the main report and the Treasury propaganda pack, otherwise known as the press notices (everything you need to know about them is summed up in the title of PN1 — 'Britain meeting the global challenge: enterprise, fairness and responsibility'). Then at least we would know where we stood.
What they actually released was a Treasury view of what the PBR was about: the report, the fiscal background documents, and the housing supply documents, including the proposals for planning gain supplement. The HMRC documents seem to have been considered as not really worthy of being included within this august collation, relegated to the 'below stairs' of the website. One hopes that this is not the way the Treasury views the relationship between themselves and HMRC: masters and servants, officers and enlisted men. Most of the people using the budget packs would far prefer to discard the 90% froth and piffle which shows how the golden rule has just about been kept if you measure it from a particular Wednesday afternoon in November 1997 to a week next Tuesday, and get the hard facts about how the spreading relief for UITF 40 is to work.
UITF 40
These also, of course, were not there. A note in the PBR explained that spreading relief was to be made available, and that it would be for three years, rising to six in the most badly affected cases. It was left to a subsequent note on the Tax Faculty website to explain what relief the pressure applied by the CCAB, and particularly the data about the effect on clients collated by the Tax Faculty, had given rise to. Broadly speaking, the amount charged each year will be one-third of the increase brought about by the change, or one-sixth of the profits for the year, whichever is the lower. That will continue until the full amount has been brought into charge, but in the sixth year a final balancing addition will be made of anything so far untaxed.
But this, too, is unfit for purpose. We will be including an article on the point in a future issue of Taxation , so I do not want to get into the details, but briefly the new proposals seem only to apply to those who change their practice when it is mandatory under Application Note G. It does not apply to early adopters. That is something which clearly needs to be dealt with before the provision is enacted, particularly in the light of Arrowtown and the current state of play in the Mars case, which seem to suggest that it is not possible to revise the accounts in order to adopt another GAAP-compliant position that gives a better tax result.
Credit due?
Since I appear to be in curmudgeonly mode, let me continue … There has been a widespread welcome for the proposal that the income threshold for putting tax credit awards onto a current year basis has been raised to £25,000 from the current £2,500. The only real criticism seems to have been that it applies from April 2006 onwards, leaving those whose income went up during 2005-06 by more than £2,500 having to make a repayment. Aside from that one complaint, most people seem to think that the new rules are a sensible compromise, putting all but a few claimants onto a clear prior year basis.
The problem is that they don't. They put claimants onto a prior or a current year basis, whichever is the more attractive. That could have some unusual repercussions, though the pensions industry might find them rather attractive.
Say you are a single parent on £25,000 a year with two children but no childcare costs. You have a maximum claim of about £7,500 in WTC and CTC in addition to the family element, but you are just about at the point where it has tapered away to nothing. What can you do?
Free pensions
From April 2006, you ask your employer to pay you £10,000 a year and to put £15,000 into a pension scheme for you. The loss to you in net pay is £10,050 (67% after tax at 22% and NI at 11%). However, your income has now reduced by £15,000, which will mean you can claim tax credits of 37% of this, £5,550. If you tell HMRC about your changed position, the tax credits should start immediately, and even if you do not tell them, the payment will be made at the end of the year, since a claim will already be in place for the family element. So your net loss is actually £4,500.
In April 2007 you ask your employer to put your salary back to £25,000 and to stop making the pension payments. You get back the net pay of £10,050, but you do not lose the £5,550 of tax credits. So now, rather than being £4,500 down, you are £1,050 better off for having diverted £15,000 into a pension. Plus you have a pension fund of £15,000 … From April 2008 your tax credits would cease — unless you started the process all over again.
Of course, the sort of parents for whom CTC was really meant will not be able to afford to do without the £4,500 in 2006-07 in order to get it back with what is effectively nearly 10% interest in year 2005-06, in addition to a windfall pension. It will be those who can afford to significantly reduce their income because they have capital to live on (which is not taken into account in the tax credit system). Is that really a tax credit system that is fit for the purpose for which it was intended?
Many a SIPP
The pension industry could be forgiven for saying that it deserves a bit of good news. The announcement that the system was to be simplified was the last good news it had. Since then the announcements have all been about further complications. The latest u-turn on residential property is an atrocious breach of trust, when the pensions industry has prepared for A-day in good faith on the basis of the statements so far made.
Again, has the Chancellor created a system that is fit for purpose? We know what we are NOT going to be allowed to do with residential property and SIPPs, but we still do not know clearly what we ARE going to be able to do in making pension payments for controlling directors of personal service companies. So far it seems that, provided the director has done work that is sufficient to justify his or her total remuneration package (including pension) there will be no problem, but there is no clear published guidance to say so, and the latest volte face on residential property scarcely inspires confidence. In any case, a system which was meant to be providing a simple and straightforward régime with one lifetime allowance check now seems to have grown like Topsy into a system that checks fund levels every five minutes from retirement to death.
Planning gains
I include one last example of being unfit for purpose. The new planning gain supplement is going to charge a moderate level of tax on the increase in value of land when planning permission is granted. This is in line with the recommendation of Kate Barker's report into the problems of housing supply.
However, the tax is only to be collected once development begins. Whilst that might seem logical, it is in fact a reversal of one of the main points behind the scheme in the first place. The idea was that by charging AND COLLECTING tax on the grant of planning permission, companies would not be tempted to sit on land banks and watch them go up in value, they would actively seek to develop them. Whilst it can be argued that there is no money coming in at the grant of planning permission in order to fund the payment, in practice the planning gain supplement would simply lower the price that developers were prepared to pay landowners for the land that they option prior to getting planning permission. This whole rationale is lost, perhaps even reversed. by a planning gain supplement where payment is related to development starting, and it begins to look a lot more like a money grab than a plan to encourage more house building.
Bah, humbug
What a grumpy, grouchy, moaning comment article to produce in our Christmas issue. Sorry. But it does irritate me almost beyond measure that the Chancellor keeps tinkering with the tax system and only succeeds in making it worse. Still, we're going to go away for a two-week Christmas break now, which will give my blood pressure time to subside. We will see you in our first issue of 2006, which will be out on Thursday 5 January. A merry Christmas and a prosperous New Year to all our readers, ho, ho, ho — humph.
