JOURNAL 19

GORDON BROWN’S TAX BUDGET

Last week’s Budget was an odd affair. Chancellors of the Exchequer usually use their budget speech to showcase their tax changes. Gordon said very little about tax. He concentrated on patting himself on the back for how well he think he has done as Chancellor since his appointment, and set out his plans for reforming British society, concentrating on education.

Sadly those who listened to the speech and thought there would be few tax changes this year were brought back to earth when they discovered that HMRC had issued 156 pages of Budget Notes together with a large number of consultation documents. Our views on those detailed proposals can be found on our website www.blackstonefranks.com , so I will not repeat them here.

Instead I will take the opportunity to give the answer to last week’s quiz on Chancellors of the Exchequer.


1. Spencer Perceval was the only Chancellor to be assassinated in office. He was shot in the lobby of the House of Commons in 1812. To be fair he combined the roles of Chancellor and Prime Minister and was shot in the latter capacity, not because of his budget measures.
2. Henry Addington abolished income tax on 1802 – but he reintroduced it in a modified form as property tax the following year. Nicholas Vansittart is credited with abolishing it in 1816, That is not strictly correct though. In 1815 he promised that he would abolish it the following year and when in 1816 he explained to parliament that he had changed his mind parliament revolted and voted to abolish the tax.
3. Addington re-introduced income tax in 1803 and Sir Robert Peel in 1842. Peel reintroduced it as a “temporary” tax but it is Peel’s tax that has survived to this day. Parliament votes income tax for one year only to stress its “temporary” nature but, sadly, is unlikely ever to overlook the need to extend it.
4. William Gladstone proposed to abolish the tax over a period, but the demands of the Crimean War prevented him carrying through his plan.
5. Henry Addington when increasing tax on alcohol in 1802, asserted that “he was sorry that the price of malt liquor, now a necessity of life, should be raised on the public”.
6. William Pitt the Younger, was Chancellor when he fought an illegal duel with the then Foreign Secretary (Tierney) on Putney Heath.
7. William Pitt the Younger also, sadly, died bankrupt.
8. Even the friends of Nicholas Vansittart are said to have greeted his resignation with relief.
9. Benjamin Disraeli was the hothead who was expelled from school for fighting.
10. Benjamin Disraeli wrote a number of novels the most famous being, Coningsby, Sybil, Tancred, Endymion and Vivian Gray.
11. William Gladstone was the first Chancellor to put all of his proposed tax changes into a single bill (Customs and Inland Revenue Bill 1861).
12. Lord Randolph Churchill was fined 10/- (50p in today’s money but worth a great deal more in 1870 when the fine was imposed then in 2006) for assaulting a police officer. He knocked off his hat
13. Lord Randolph Churchill once told his sister-in-law that he only liked rough women who dance and sing and drink – the rougher the better.
14. Iain Macleod was Chancellor from 20 June 1970 to 20 July 1970. He was rushed to hospital with appendicitis on 7 July and although he was discharged on 15 July, suffered a fatal heart attack on 20th. His successor Anthony Barber largely adopted Macleod’s budget as his own first budget.
15. William Gladstone once proudly proclaimed that he “had not a drop of blood in his veins which was not Scottish”.


Robert W Maas

JOURNAL 18


NO ROOM FOR MAGNANIMITY IN VARNEY’S HMRC?

Dr Chauhan is a dentist. As such he is clearly not a tax expert. He did not understand the complex rules that applied to self-employed people when self-assessment was introduced in 1996. He felt particularly upset that, while all around him seemed to be benefiting from the transitional rules, his tax inspector demanded more tax from him than under the old rules.

As he was entitled to, he appealed to the General Commissioners for Hammersmith. They expressed sympathy with his plight but explained that the law was on the side of HMRC. Dr Chauhan, whose profits were running at a meagre £16,000 or so a year, exercised his right to appeal, as a litigant in person, to the High Court. The judge accepted the argument on the law put forward by counsel for HMRC. He acknowledged that “Dr Chauhan appears in person and plainly has a sense of grievance”.

In most cases where an aggrieved taxpayer appeals as a litigant in person HMRC have not in the past asked for costs. However they asked for, and were awarded costs of £4,792.50 against Dr Chauhan. That is getting on for 50% of one year’s post-tax income of Dr Chauhan!

Dr Chauhan probably now feels not merely aggrieved but also bewildered that the State has demanded such a harsh punishment for daring to exercise the rights that Parliament has given him to challenge the tax demands of the State.

Are you proud to be English? I don’t myself feel proud to be a citizen of a State that acts with such harshness.


Robert W Maas

JOURNAL 17

CAN YOU IDENTIFY THE FOLLOWING CHANCELLORS OF THE EXCHEQUER?

Our current Chancellor of the Exchequer, Gordon Brown, presents his budget today. Gordon is not renowned as a colourful character so I thought it might be an opportune time to look at some of his predecessors. So here are things you may not know about Chancellors of the Exchequer.

1. Who was the only Chancellor to be assassinated in office?
2. Which Chancellor abolished income tax (there are two answers)?
3. Which re-introduced it?
4. Which Chancellor proposed to abolish income tax but never managed it?
5. Which Chancellor, when increasing tax on alcohol, asserted that “he was sorry that the price of malt liquor, now a necessity of life, should be raised on the public”?
6. Which Chancellor fought an illegal duel with the then Foreign Secretary on Putney Heath?
7. Which Chancellor died bankrupt?
8. Which Chancellor’s resignation was regarded with relief even by his own friends?
9. Which Chancellor was expelled from school for fighting?
10. Which Chancellor was also a novelist?
11. Who was the first Chancellor to put all of his proposed tax changes into a single bill (now the Finance Bill but then the Customs and Inland Revenue Bill)?
12. Which future Chancellor was fined 10/- (50p in today’s money but worth a great deal more in 1870 when the fine was imposed then in 2006) for assaulting a police officer?
13. Which Chancellor once told his sister-in-law that he only liked “rough women who dance and sing and drink – the rougher the better”?
14. Which Chancellor served for the shortest period (and never presented a budget)?
15. Which Chancellor proudly proclaimed that he “had not a drop of blood in his veins which was not Scottish”? (clue: not Gordon Brown)

Answers next week for those who cannot work them out.


Robert W Maas

JOURNAL 16

FAIRNESS IS IN THE MIND OF THE BEHOLDER

My eye was caught by a letter to The Times the other day. The correspondent recounts that he bought his flat 40 years ago for £7,500 and he believes it is now worth £750,000. He questions why his contribution to local taxes should be based on this latter fact, bearing in mind that he sacrificed much to buy the flat 40 years ago and that he made a shrewd purchase by identifying a property in an up and coming area well before others did.

This raises an interesting question about fairness. The Inland Revenue’s statistics for 2002 (the latest I can easily find on the web) indicate that out of 16,267,000 people who died during that year only 599,000 left estates over £500,000 and only 520,000 of them had a house worth more than £500,000. The correspondent accordingly appears to be amongst the top 3½% of the population in terms of wealth. Yet he seems to believe that when it comes to deciding what his fair share of tax ought to be the State should ignore his wealth and look only at his pension.

Personally if find that an odd concept. We have always had a tradition in this country of progressive taxes i.e. the richer a person is the more tax he ought to pay, not merely proportionally more than others by reference to their respective amounts of income but rather that the wealthier class ought to contribute more than a pro rata share of the tax payable. Of course I appreciate that the correspondent likes his flat and does not wish to sell it, so he regards the value as not contributing to his capacity to pay. But is this right? Why should he not expect to contribute the same amount of tax as a neighbour with £750,000 of assets who has diversified his investments and only left say a third of it in his house? He could move to a smaller flat and release some of his investment or, I suspect, could borrow against the investment. Why should he expect his fellow citizens to, in effect, say “You have all this wealth but we agree that your tax should not be based on this wealth because you choose not to convert any of it into a form which will enable you to meet the tax?” It would be an odd system that says that the wealthy can choose how much tax they ought to pay by their choice as to how they invest their wealth. Indeed some might regard an investment policy that is designed to remain illiquid so as to reduce ones tax burden as tax avoidance!

The Paymaster General and various high level officials within HMRC are constantly telling us that it is important that everyone should pay the right amount of tax. This letter to The Times highlights the problem that the right amount of tax is often a matter of perception and different people have different perceptions. I imagine that the correspondent genuinely feels aggrieved, whereas I believe it perfectly fair that he should be in the highest council tax bracket. Shouldn’t we have a national debate to see if we can reach a consensus as to what the right amount of tax ought to mean? Probably not, because I doubt we will ever reach a national consensus - although perhaps a national debate would at least force people to question the validity of their perceptions. Of course we all want to pay as little tax as we can, and we all think that the share that the nation has allocated to us is unreasonably high, but perhaps if we were to debate how the allocation ought to be made some people would at least feel less aggrieved than at present. That might even lead to a greater acceptance of an obligation to pay the tax that the State demands of us!

Robert W Maas