LIB / CON – Coalition Final Agreement

Q.  Duncan, how is the LIB / CON coalition likely to impact on my personal finances?

A.  The Conservative and Liberal Democratic government has issued its final Coalition agreement which, among other things, contains proposals on taxation, pensions and business.

The two parties in government have issued their final Coalition Agreement. This sets out how they intend to govern over the next 5 years.  The taxation and pensions sections and a small part of the business section are reproduced below.

TAXATION

‘The Government believes that the tax system needs to be reformed to make it more competitive, simpler, greener and fairer. We need to take action to ensure that the tax framework better reflects the values of this Government.

• We will increase the personal allowance for income tax to help lower and middle income earners. We will announce in the first Budget a substantial increase in the personal allowance from April 2011, with the benefits focused on those with lower and middle incomes. This will be funded with the money that would have been used to pay for the increase in employee National Insurance thresholds proposed by the Conservative Party, as well as revenues from increases in Capital Gains Tax rates for non-business assets as described below. The increase in employer National Insurance thresholds proposed by the Conservatives will go ahead in order to stop the planned jobs tax.

• We will further increase the personal allowance to £10,000, making real terms steps each year towards meeting this as a longer ­term policy objective. We will prioritise this over other tax cuts, including cuts to Inheritance Tax.

• We will also ensure that provision is made for Liberal Democrat MPs to abstain on budget resolutions to introduce transferable tax allowances for married couples without prejudice to the coalition agreement.

• We will reform the taxation of air travel by switching from a per-passenger to a per-plane duty, and will ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance.

• We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.

• We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals.

• We will increase the proportion of tax revenue accounted for by environmental taxes.

• We will take measures to fulfil our EU treaty obligations in regard to the taxation of holiday letting that do not penalise UK-based businesses.

• We will review the taxation of non-domiciled individuals’

PENSIONS

‘The Government believes that people deserve dignity and respect in old age, and that they should be provided with the support they need. That means safeguarding key benefits and pensions, and taking action to make it easier for older people to work or volunteer.

• We will restore the earnings link for the basic state pension from April 2011, with a ‘triple guarantee’ that pensions are raised by the higher of earnings, prices or 2.5%.
• We will commit to establishing an independent commission to review the long­term affordability of public sector pensions, while protecting accrued rights.
• We will phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women. We will end the rules requiring compulsory annuitisation at 75.
• We will implement the Parliamentary and Health Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure.
• We will explore the potential to give people greater flexibility in accessing part of their personal pension fund early.
• We will protect key benefits for older people such as the winter fuel allowance, free TV licences, free bus travel, and free eye tests and prescriptions.
• We will simplify the rules and regulations relating to pensions to help reinvigorate occupational pensions, encouraging companies to offer high-quality pensions to all employees, and we will work with business and the industry to support auto enrolment.’

BUSINESS

• ‘We will review IR 35, as part of a wholesale review of all small business taxation, and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility.
• We will reform the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates. Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries.’