Rt Hon Gordon Brown MP
Chancellor of the Exchequer
11 Downing Street
THE MOTLEY FOOL'S BUDGET PROPOSALS
Please find following four proposals for the next budget which we believe will enrich individuals, encourage enterprise and strengthen all aspects of the economy.
Firstly, a brief introduction. The mission of the Motley Fool UK - www.fool.co.uk - is "to educate, amuse, and enrich" the people of the United Kingdom. Our model is the Fool of Shakespeare's plays and of mediaeval government. This Fool was the only person able to tell the truth to the King, and survive. We also call ourselves Fools in contrast to the "Wise" money managers, who have for so long underperformed the stock market and overcharged investors to a degree which defies belief.
In that spirit we commend to you the Foolish Four Proposals:
1) Abolish Stamp Duty on share purchases
It is time for Britain's oldest surviving tax to go. It was introduced in 1694 to finance our war against the French and now has little relevance to the modern world. Most EU countries do not have this trading tax, and those that do levy it at a much lower level. Germany, Italy, Spain the Netherlands and Luxembourg do not impose the tax at all while France has a rate of 0.3%. In the United States the transaction tax is 1/300 of 1%, or 0.0033 per cent.
Stamp duty discourages private investors from building their own portfolios (and reducing their reliance on the State for support). It discourages investment in British companies. And most important, given the competition in the global marketplace, which is becoming ever more open and accessible, the position of the City of London as a major trading centre is threatened. The proposed link between the London and German markets highlights the issue. If people have a choice of where to shop, as recent supermarket price wars show, they will search out the value and trade there.
2) Simplify Capital Gains Tax
Capital Gains Tax (CGT) is now so complicated that the ordinary investor (and we suspect many accountants and advisers) cannot understand it. We now have two regimes, of indexation and taper relief, running side by side making this an administrative nightmare. Even so, we believe it is worth making a further drastic simplification.
In these days of low inflation (for which we as investors and savers thank you) indexation and taper relief is not so important, and our proposals are derived, in part, from the American system which adopts a broader approach. We would like to see CGT on gains from shares to be as follows:
a) the tax-free allowance to continue unchanged;
b) gains above the allowance to being taxed:
- at the marginal rate if sold in one year or less; and
- at half the marginal rate if sold after that.
You can crunch the numbers far better than we can to come up with a neutral setting. Setting the tax at a lower level could also increase revenue as people make less effort to avoid it.
3) Simplify ISAs
The idea of combining TESSAs and PEPs into one vehicle was a good one but somehow the detail has fogged the principle. We recommend that you scrap the mini-ISA (too confusing), and retain the maxi-ISA on the basis of one per person per year, into which can be placed any combination of cash, shares, life assurance, or Unit Trusts. We all want to encourage saving, and making it as simple as possible is the best way to do it.
4) Restore the dividend tax reclaim for non-taxpayers
You altered the system of taxing dividends from April 1999, changing the tax credit to 10 per cent of the gross value of the dividend, and withdrawing the ability of charities, pension funds, and non-taxpayers to reclaim the tax credit. We are not going to argue for pension funds, but we do think that charities and particularly non-taxpayers should have this right returned. Non-taxpayers, by definition on low incomes, are the financially weakest of these three groups; many of them are old people on fixed incomes who have been made poorer as a result. The cost of restoring this is small in comparison to the widespread welcome it will receive, and we urge you to do it.
Those are our Foolish Four Proposals. We look forward to seeing them in your Budget speech, but we will understand perfectly if you feel that Parliamentary protocol prevents you from acknowledging their true Foolishness.