Each year there’s a distinct sequence leading to the budget, with milestone moments including the Tax Strategy Group papers. These are produced by high-ranking civil servants and offer scenarios for future tax and welfare modifications. In essence, they typically combine an annual cost analysis of basic proposed measures, an evaluation of the targets the government has posited in its programme, and on occasion, definitive suggestions from public employees.
Well-recognised themes tend to recur. The first of these is the dependency on a tight tax base which primarily relies on a minute proportion of corporation taxpayers and the income tax coming from their employees. The second issue deals with the substantial expense of modifying the income tax system for inflation – any attempts at this current year will result in minimal leeway for additional implementations.
A closely linked third point revolves around making changes in other areas, such as re-instating the hospitality industry’s 9% VAT rate, which will inevitably call for challenging decisions elsewhere. Despite the considerable budget surplus, the actual flexibility in many instances is rather limited. Where changes might not be excessively expensive – such as lowering taxes on inheritance and capital gains – it’s largely a reflection of the initial low revenue these taxes generate.
It’s evident that the government recognises the nature of the decisions it faces. The documents provide a glimpse into the advice of the civil service – notable is the resistance towards restoring the 9% VAT rate. However, there are indications the civil servants are being deliberate about what they document, given it will be made public, which reduces the insights into genuine policy compromises.
Tax-wise, one thing is certain – should the government increase income tax credits and bands to account for inflation, and make cuts elsewhere to aid the less affluent, there won’t be much left. Possibly just enough to garner some attention before an election, but insufficient for substantial influence.