From time to time, tax changes announced in the Government’s various Budgets generate so much controversy and attract so much criticism that a U-turn becomes almost inevitable.
The Inheritance Tax shake-up proposed by the Chancellor in October could very well be the next example, judging by the reaction from the farming community.
Here’s a recap of some of the most famous tax U-turns from (semi) recent times.
Community charge (1989–90)
The Community Charge (commonly known as the “Poll Tax”) was introduced by the Conservative Government in 1989–1990 to replace the previous system of domestic rates.
Based on a fixed rate per household, it was widely criticised for being unfair, and its introduction led to mass protests (and riots) across the country.
The Community Charge was abolished and replaced by Council Tax in 1993.
Income Tax 10p rate (2008)
In his final Budget as Chancellor, Gordon Brown axed the 10p starting rate of Income Tax.
The move attracted widespread criticism and led to his successor, Alistair Darling, rolling out support to those who (Brown eventually conceded) had lost out from the change.
To address the concerns, the Chancellor announced in May 2008 that the personal allowance for the 2008–09 tax year would be increased by £600, from £5,435 to £6,035, offering relief to low-income taxpayers affected by the abolition of the 10p rate.
However, to ensure that higher-rate taxpayers did not benefit from the adjustment, the threshold for higher-rate Income Tax was reduced by £600.
These changes came into effect in September 2008.
Tax credits cuts (2015)
In 2015, George Osborne proposed tax credits cuts as part of the austerity programme, which would have impacted millions of low-income families.
After a defeat in the House of Lords and public criticism, the Government scrapped the proposals and opted for more gradual reform.
In many ways, the House of Lords acted as a fail-safe in this case – preventing potentially detrimental policies from coming to light.
National Insurance (2017)
In the 2017 Spring Budget, Chancellor Philip Hammond announced a two per cent rise in the rate of National Insurance paid by the self-employed, to be made in stages over two tax years.
Many – including a lot of Conservative backbenchers – thought that the proposal broke the 2015 manifesto commitments.
Hammond announced a U-turn just one week after the Budget, scrapping the proposals altogether.
Mini-Budget (2022)
No list of tax U-turns would be complete without mentioning the infamous Truss-Kwarteng Budget of 2022.
Market turmoil and a collapse in public confidence meant that most of the tax moves, including cutting the 45p rate of Income Tax and reversing a planned increase in the rate of Corporation Tax, were swiftly dropped (as were Truss and Kwarteng just days later).
Looking at the reaction of the farming community, retailers and the wider business community to the latest Budget, perhaps it would be no surprise to see another U-turn or two in the coming weeks and months.
I would not want to be in Rachel Reeves’ shoes right now!
