I don’t know how many of my readers were on the planet in 1974 , I’d just taken my 11+ and was wondering why my Dad had become a Liberal councillor.
With Labour back in power, it was the first budget from new chancellor Denis Healey, who had held the job for just three weeks. Labour MPs welcomed the budget, except for Dennis Skinner who walked out of the Commons when he heard that Mr Healey was postponing the introduction of a wealth tax. Two Conservative MPs wore Chairman Mao suits for their budget day performance in mocking tribute to Mr Healey who, they said, was the first British chancellor to have been a member of the Communist party.
If you are wincing at the impact of fiscal drag, take a look at the top rates of income tax (with a threshold of £20,000 pa).
Income tax
Income tax rates raised by 3% taking the basic rate to 33%. A new tax band at 38% was introduced and the top rate was increased from 75% to 83%.Corporation tax
Increased by 12% to 52%.VAT
VAT of 10% to be charged on petrol. VAT also applied to sweets, ice cream, soft drinks and crisps.Housing
Tax relief for interest on loans used to buy second homes was withdrawn.Duties
Beer up 1p, wine up 10p and spirits up 20p.
Thanks to the Pensions Oldies
This information arrived in my inbox from the mysterious Pensions Oldie. No one knows who he is but he is a fountain of wisdom.
Those who have lived so long and worked so long as he has, have a perspective on our current challenges that we should be listening to.
Yesterday, I investigated the contracting out deductions that seem much smaller than they should be. Another Pension Oldie wrote to me with these wise words
It might not be fair but don’t fret.
You have to wait longer to get your BSP. That was needed for various reasons but one was the extra early costs of some of the changes to introduce the new basic.
There is a big saving eventually from no SERPS accruals, that takes time. Also the poorly advertised removal of substitution and inheritance. But short term there is a cost. The much higher basic is a bonus immediately for those with no or very low employee contributions (the self employed or those with lots of credits). And the feature you win from – phasing out CODs quickly to get most people on the new higher basic at the full rate.
Those who see the inter-generational transfer as a one-way valve, old people sponging off the young, think again.
The gains we have in our lifestyles result from the work of the Oldies (much older than me) in lifting Britain out of the post-war mess it found itself in , in the 1960s and 1970’s.
We have a great deal to learn from the Pension Oldies and my generation and those who come after ignore their wisdom to our detriment.
I remember those tax rates well. It was fun working for the state. A quick story – I was working in London for an American investment bank – my boss was over from New York – he had just paid me a very large bonus – I had the cheque sitting on my desk – my boss asked what it was – I told him – he thought there has been a mistake in the staff department: “It can’t be that little”. It was correct. Thereafter, all of the staff got rotations of a year or two through the New York or other offices
My second year in the business. Single premium bonds were used to circumnavigate the 98% tax rate using a “ liquidity facility” Death duty had been replaced by Capital Transfer Tax.
Denis Healy became a client 10 years later on recommendation from Asa Briggs both came through a cluster of University staff clients ( Sussex and Worcester College in these cases)
The move from Equitable and Ecclesiastical to USS was a fertile time.
52% Corporation Tax made pensions a no brainer for corporate pensions as did salary sacrifice. Menu remuneration planning came and went. Killed off when payment in baked beans were used to reduce National Insurance costs.
Fiscal drag, defined by the President of the CTA, as “not a transvestite Tax Inspector” I often lectured with Gerry to explain pensions to Tax Bar clients at a venue in Chancery Lane or at tax conferences at New College and The IOD.
And wife’s income added to the husband’s