Coalition one year on: Who benefitted from a year of tax measures?

It will be a year tomorrow since a General Election which saw Labour win 29% of the vote yet led to the Conservatives forming a coalition government with the Liberal Democrats took place.

Since coming to power in May 2010, the coalition government has placed reforming the tax regime high on its agenda.

In his emergency Budget of June 2010, Chancellor George Osborne unleashed a tough package of cuts and tax rises, saying “decisive” action was needed to tackle the nation’s record debt.

Capital gains tax jumped from 18% to 28% for higher rate taxpayers, and the Chancellor maintained the VAT rise to 20% from January 2011.

However, in a sop to the business community, corporation tax was cut from 28% to 24% over the next four years, giving Britain the lowest rate of any major Western economy.

July 2010 also saw the launch of the Office for Tax Simplification, widely heralded as a sensible move. A more radical tax untangling exercise was unveiled in the March 2011 Budget, with 43 complex tax reliefs abolished and 100 pages removed from the tax code.

In this year’s Budget, the coalition also announced a series of business-friendly tax measures aiming to help the private sector kickstart the ailing economy.

Declaring “Britain is open for business”, Osborne announced corporation tax would be slashed by 2% from April – instead of the previously announced 1% – and would continue to fall by 1% in each of the following three tax years.

In a further sweetener to the business world, the coalition said income tax relief on Enterprise Investment Schemes would increase from 20% to 30% in April 2011.

Build up to the Budget was dominated by speculation the coalition would merge income tax and national insurance. Although this proved something of a damp squib, Osborne said the government will consult on merging the two taxes to make them “fit for the modern age”.

The Budget was also expected to herald a tough clampdown on non-doms, but the eventual rules delivered a much softer punch than predicted. The existing annual charge for those living in the UK for 12 years or more was increased to £50,000, up from £30,000. Some had forecast the charge to rise to as much as £100,000.

Income tax thresholds, meanwhile, have seen change at both ends of the scale. The personal allowance is now firmly on track to reach the coalition’s aim of £10,000 of tax-free income. The increase to £7,475 from April 2011 will be followed by a rise to £8,105 from April 2012.

At the other end of the spectrum, higher earners have been left disappointed with the drop in the highest tax threshold. The 40% higher rate will be charged on amounts above £35,001, down from £37,401. Those earning more than £150,000 are still being hit by the 50% rate, although Osborne has suggested this is a short-term measure.

In all, Osborne’s taxation policies have been a mixed bag of bitter pills and sweeteners. The question now is whether the coming year’s policies will leave a bad taste in the mouth.

The coalition’s first year in numbers

Inflation

GDP growth