George Osborne was Shadow Chancellor from 2005 – 2010, and Chancellor of the Exchequer from 2010 – 2016. During his period as Chancellor in the aftermath of the financial crisis, George Osborne delivered eight Budgets. While the effectiveness or otherwise of his 'age of austerity' continues to divide commentators, his creation of the Office for Budget Responsibility, significant increases in the income tax personal allowance and reduction in corporation tax rates have all met with approval.
Whether judged as an approval-seeker or as a visionary with a sharp awareness of the needs of the country, George Osborne acquired the reputation of someone who delighted in pulling magical rabbits from his red despatch box. These rabbits, which usually took the form of changes intended to appeal to the widest possible public, were sometimes not all they initially appeared to be. History judges them accordingly. Here are a few examples.
The 2013 Budget introduced, with effect from 1 April 2013, a package of measures intended to help relieve the housing crisis by making it easier for people to get on to the housing ladder. The package included equity loans, mortgage guarantees and ISAs. Once the package was understood, it was criticised on the basis that its general impact on the housing market would be undesirable, pushing up prices as the availability of new funds outstripped the rate at which new homes could be constructed. This in turn translated into greatly enhanced profits for some developers along with market incentives for existing homeowners to sell. In the views of many people, the intended benefits of Help-to-Buy have been outweighed by the unintended consequences.
Announced in 2014 and taking effect from 5 April 2015, these reforms scrapped compulsory annuitisation, freeing over-55s to spend their pension savings as they wished. The responsibility placed on the shoulders of individuals led to a growing demand for financial advice and guidance. While individuals who have approached their freedoms carefully have the opportunity to make good decisions, others have found themselves exposed to large income tax liabilities because of the transfers. The level of pension scams has also risen alarmingly.
End of the personal tax return
Promised in the 2015 Budget and driven by a concern that accidental or deliberate errors in returns were leading to a very substantial loss of tax, the 'end of the personal tax return' quickly translated into Making Tax Digital for VAT (MTD). MTD took effect in 2019, with landlords and the self-employed likely to be brought within the scope of from 2021 at the earliest. Based on the experience of MTD so far, neither the administrative reductions promised to taxpayers, nor the prospect of higher taxes for the Exchequer, seem to be delivered.
Stamp duty reform
The removal of the slab-based system, under which tax rates applied to the whole purchase price, and its replacement with a more progressive system had the welcome effect of reducing the tax payable by most purchasers of houses costing less than £1 million. However, the increase in the top rate of tax from 7 per cent to 12 per cent (with a 3 per cent surcharge for second properties and properties bought by companies) has dramatically distorted the upper end of the housing market. In his 2019 pre-election promises, Boris Johnson undertook to increase the threshold from £125,000 to £500,000 and to reduce the rate on homes costing more than £1.5 million from 12 per cent to 7 per cent. This is a key area of speculation ahead of the 11 March 2020 Budget.
A series of tax changes announced in 2015 were phased in between 2017 and 2020. As a result, some private landlords faced a marginal tax rate in excess of 100 per cent of their profits: they had to pay HMRC more than they had earned from the letting. Many private landlords have left the market. Walking past letting agents now, you are likely to see a sign ‘landlords wanted’ replacing the previous ‘tenants wanted’. Whether these consequences were foreseen by the Chancellor or not, some private landlords who have decided to remain in the market have converted rental stock to holiday homes. In many cases, rental property previously owned by private individuals is now owned by overseas companies to secure a more favourable tax treatment in the UK.
Diverted profits tax
Announced in 2014, this took effect from 1 April 2015. It is aimed at multinationals who divert profits from the UK to avoid tax. The intention is that they should pay a fair amount of tax in the UK and so level the playing field with UK businesses. As part of the UK’s plans to collect taxes due from global corporations, it was a precursor to the digital services tax which comes into force on 1 April 2020. While apparently at odds with the OECD’s initiatives to achieve a measure of global fairness, the OECD has recently recognised that single-country initiatives such as this have been helpful in reaching a commitment by the 137 countries participating in its talks. As a result, those countries have affirmed their commitment to reach an agreement on a consensus-based solution by the end of 2020. This solution will cover both a new way to tax these companies and a minimum corporate tax rate. Once the OECD agreed mechanisms take force, the UK’s diverted profits tax and digital services tax will be repealed.
It's clear from this that some of Mr Osborne’s big tax ideas have succeeded, others have failed wholly or in part, while some have succeeded in ways which could not have been foreseen at the time.