Taxbriefs Commentary Library

Taxbriefs Chancellors 3 - Nigel Lawson Part 1: 1983-86

Editorial Team, 10 Feb 2016


 

 

Nigel Lawson was Margaret Thatcher’s second Chancellor, replacing Geoffrey Howe after the 1983 election. Before entering politics he worked as a successful journalist– he was famously a contributor to the Financial Times’s Lex column (as was Ed Balls), as well as City Editor for the Sunday Telegraph and editor of The Spectator.

His six year tenure at the Treasury was busy with a number of detailed measures of  long-reaching effects. So we’re covering his Chancellorship in two parts – here from 1983 to 1986.

  • In his first Budget in 1984 Lawson announced a number of radical tax measures, including:
    • Scrapping the 15% investment income surcharge;
    • Reducing the top rate of Capital Transfer Tax to 60% from 75%;
    • Slashing the mainstream rate of corporation tax to 45% from 52% and the small companies rate from 38% to 30% (thereby matching basic rate income tax). Further mainstream reductions were scheduled down to 35% in 1986;
    • Ending stock relief and phasing out some first year capital allowances;
    • Abolishing the National Insurance Surcharge levied on employers;
    • The introduction of new rules for offshore funds (distributor/non-distributor classification), designed to put an end to offshore deposit funds which rolled up interest but were taxable under CGT rules;
    • Killing off life assurance premium relief, then at a rate of 15%.
  • The 1985 Budget scrapped Development Land Tax (which was set at 60%). It also revised the structure of NICs to prevent the cliff edge effect which had meant that earning an extra 1p (from £33.99 to £34.00 a week) could have moved an individual’s NIC bill from zero to £3.06 a week. This was in part financed by removing the earnings ceiling on employer contributions (at 10.45%).
  • The 1986 Budget was particularly notable in several respects:
    • It gave birth to Personal Equity Plans (PEPs), the predecessors of ISAs, with a maximum annual investment of £2,400 of which no more than £600 could be in unit trusts. The first PEPs were offered in January 1987, just over nine months before the October 1987 stock market crash;
    • The basic rate of tax was cut by 1% to 29%;
    • Capital Transfer Tax was rebranded as Inheritance Tax, with a number of changes made, including the introduction of potentially exempt transfers, new rules on gifts with reservation of benefit and a reduction in the cumulative period for lifetime gifts from 10 years to 7 years;
    • Stamp duty reserve tax was introduced.

1986 was seen in retrospect as marking the start of the ‘Lawson Boom’, with the City’s Big Bang adding to the excitement. The boom saw a jump in inflation from 3.7% in 1986 and 1987 to 6.8% in 1988 and 7.7% in 1989.

What he said

“Nothing could be further from the truth than the claim that we have a choice between cutting tax and cutting unemployment, for the two go hand in hand.” Speech in the House of Commons 18 March, 1986

Budget soundtracks

The charts in the mid 1980s were dominated for Nigel Lawson’s first Budgets by big stars with big hits. Lionel Richie held the number 1 spot for six weeks in a classic of 80s schmaltz. The Sony CD Walkman – the ‘Discman’ – was just available, as was the first Macintosh personal computer. Amadeus, Out of Africa and Platoon won the best picture Oscars.

 


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