Spending Tomorrow’s Money Today

I haven’t written a blog post for a while. The project I set myself – of educating the interested public in tax matters – ran aground on the banks of a disinterested public. However, I was so irritated at a piece of chicanery in yesterday’s budget that I was moved to pick up the metaphorical pen.

The biggest tax raising measure in the budget is the extension of the so-called Accelerated Payments Regime pursuant to which those engaged in particular types of alleged tax avoidance transaction stump up the disputed tax upfront rather than waiting for the courts to declare it payable. Just hold on, it gets interesting I promise.

The so-called ‘yield’ from this measure over the five year term for which HM Treasury forecasts is about £4bn give or take. That makes it the biggest single revenue raising measure in yesterday’s budget. It pays – or is said to pay – for 1p off a pint, a freeze in cider duty and a halving of bingo tax five times over.

Except it doesn’t.

The measure merely accelerates payments which would have been received in later years to earlier years. Tomorrow’s money today. So over, say, a ten year time-scale the measure would be yield neutral.* But over a five year time-scale, which is the only time-scale HM Treasury (publicly) looks at, it has a £4bn yield. So manipulate the time-scales and shazzam! you’ve manufactured a four billion quid budget give away. Much of it going to wealthy savers and the elderly.

Of course, if HM Treasury’s time-scales were wrong, such that, for example, the tax collected today would otherwise have been paid in year two or five rather than in year six or after as the forecasting anticipates, the measure would be revenue neutral even over a five year term.

Which makes this line in the Budget 2014 Policy Costings Document: “The main uncertainties in this costing relate to the… payment profile” (see page 37) really rather telling. Translated it means, we think we’ve magicked up £4bn but there’s a real risk about that.

*Actually, on one view it’s even worse than that. Once you factor in that the failed tax avoider who gets his fiscal come-uppance in year six has also to bear interest at a rate which substantially exceeds the Government’s borrowing rate, and that interest is foregone by Government if it gets the disputed tax now, the measure may be argued to be revenue net negative for Government.

4 thoughts on “Spending Tomorrow’s Money Today

  1. There are quite a few measures in the Budget which reverse over time. Annual Investment Allowance is one which springs to mind which would have the opposite effect of reducing tax now whilst increasing revenue later.

    I would suggest that you’d probably need to consider the net impact of all timing differences to identify whether we are, overall, spending tomorrow’s money today.

    I would suggest that we probably are. Human nature being what it is, I guess the tendency is to bring forward revenue whilst deferring expense. I can only imagine that is exacerbated by political pressure.

  2. And you’ve not even mentioned the fact that they may not actually win in court when the time comes! So it’s money that may not even be theirs

  3. That is certainly so – although it’s also something taken into account by Treasury in calculating the so-called ‘yield’ (and so doesn’t quite go to my central point).

  4. If HMRC don’t win in court, then you get the money back, with interest, as my post acknowledges.

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