Press Releases

May 2010

Accountants Highlight Tough Post-Election Choices

Whoever wins next week's general election will face a tough task in ensuring the inevitable tax rises and spending cuts that follow do not stop the fragile economic recovery in its tracks, according to South-West accountancy firm Milsted Langdon.

Simon Denton, a tax specialist, partner and a regular blogger on tax issues, said that although tax rises were widely expected, a government had to ensure it did not do anything which damaged the green shoots of recovery that are starting to appear in some sectors.

He said: "The Institute for Fiscal Studies warned this week what many of us already knew - that there is a black hole in the tax and spending plans of all the main parties and they are all, to some extent, hiding what will happen in the first budget after the election.

"We know that taxes will go up and most of our clients have already accepted that and are bracing themselves for it."

He added that a rise in VAT - widely seen as one of the most likely taxes to go up - could be particularly damaging because of the effect it would have on consumer confidence.

He said: "In my view, a rise in VAT would be a bad thing as it is a tax that is ultimately paid by consumers. Those further up the supply chain will simply pass the rise on. VAT was reduced in a bid to try and stimulate an ailing economy a year ago. If it is put up at this stage, I would be concerned about the effect that would have on consumer spending, which is crucial to any recovery.

"VAT and Capital Gains tax are the two potential rises which are being talked about the most, but there is no such thing as a pain-free tax rise. Perhaps the only tax that would not have an immediate effect on confidence and consumer spending would be changes to Inheritance Tax. However,, quite apart from the moral issues around taxing assets that have been paid for from income already taxed once, it is also generally accepted that Inheritance tax contributes very little to the overall amount of tax raised by the government.

"Cutting spending brings with it similar problems - quite a few of our clients work directly or indirectly for the public sector and with so many people working in the public sector, you can't go cutting jobs without it having detrimental effect on growth."

Simon provides a regular commentary on tax-related issues on his 'Taxing Times' blog on the Milsted Langdon website.

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