24th February 2025

Introduction

The Office for Budget Responsibility’s ‘Commentary on the Public Sector Finances: January 2025’, issued on 21st February 2025, contained a statistic that has horrified the august bodies that oversee the nation’s finances, although the statistic oracle itself – the Office for National Statistics, issuer of ‘Public Sector Finances, UK: January 2025’ – maintains a stoical silence.

The Office for Budget Responsibility laments a significant shortfall of tax revenue under the headings of ‘self-assessed income tax and capital gains tax’, below which headings the majority of tax liabilities of the self-employed and microenterprises fall: ‘cash receipts were £36.2 billion in January, £4.1 billion (10.1 per cent) below forecast’.

The Conservatives are at fault

That is a disaster but not one that can be laid at the door of the Labour government.

It is a testimony to the sustained offensive mounted by supposedly Conservative Chancellors of the Exchequer against a constituency that ought to have ranked amongst their supporters.

These Chancellors gave in to currents of thought around ‘fairness’, ‘levelling-up’ and any number of Leftist think-tank bromides. They laid the rails for the all-out war that Labour has launched against the self-employed and microenterprises (and pretty much every other constituency in UK society).

Labour’s warfare should not distract attention from the reality that it was Conservative Chancellors who laid down the rails for this disaster, upon which Labour are now running a packed timetable of trains.

January 2025 payments are nothing to do with the period July 2024 until January 2025

The poor self-assessment receipts are the net result of a blancmange of payment obligations to/from HM Revenue & Customs (HMRC) for different reasons and regarding different tax years – but all in the past. They relate to what was happening under the Tories and potentially as far back as the tax year 2022/3.

One central component is the balance to be paid for 2023/4, after returns were submitted by 31 January 2025. The balance could flow either to or from HMRC.

The balance derives from the return itself and from the on-account payments made by the taxpayer in Jan/Jul 2023 for 2023/4.

The size of the on-account payments for 2023/4 was determined by the liability for 2022/3 (not by the balance payable by 31 January 2024 regarding 2022/3).

On account payments, interest, and the delay effect

Confused? Yes, it isn’t easy to concisely document all the delay factors.

Taxpayers cannot be relied upon to minimise their on-account payments by requesting that they be altered when it becomes clear that the liability for the year in question will be lower than the on-account payments. The alteration would frequently take the form of a request to reduce the second payment in the July, or to not make it at all. Some choose not to suppress or reduce it even when they could.

Risk-aversion plays a role: if the taxpayer suppresses/reduces an on-account payment and the liability comes out in line with the on-account payments, HMRC will charge interest. HMRC has to pay interest if there has been overpayment, and the rate of interest is quite attractive. Taxpayers may elect to lend to the government at that rate, if they have no immediate need for the cash. It is just about conceivable that a small portion of the payments that flowed between taxpayers and HMRC in January 2025 were a knock-on effect of the liability for 2022/3 and of an on-account payment made or suppressed/reduced in July 2022.

Another central component of the amount received by HMRC in January 2025 was the first on-account instalment for the presumed liability for 2024/5, the return for which is due by 31 January 2026. The size of the on-account payments for 2024/5 was determined by the liability for 2023/4 (not by the balance payable by 31 January 2025 regarding 2023/4).

The Conservatives were in power for the entire period to which the January 2025 payments relate

The self-assessment payments were driven by the income, costs and profits of those taxpayers subject to self-assessement while the Tories were in power, and while the economy was supposed to have been performing reasonably well.

The capital gains tax element is more recent and will reflect owners extracting equity from businesses such as in a solvent, voluntary liquidation, for example because of a fear that future tax would come out much higher, or because of a decision that the game is not worth the candle any longer.

None of the government, HM Treasury, HM Revenue & Customs, the Office for Budget Responsibility or the Office for National Statistics gave any hint that the self-employed sector was tailing off as badly as it now appears to have been.

Tories’ attack on the self-employed and on microenterprises

The fall-off of tax receipts should not have come as a surprise.

The Tories maintained a resolute offensive against the self-employed, including against microenterprises, with a range of taxation attacks – such as removal of the tax credit on dividends, the step-by-step reduction of the capital gains allowance – and with an increasing administrative burden – Making Tax Digital.

Now it seems that these attacks were having a significant impact on margins, profits and activity levels, and this is before Labour came into power and widened and deepened the attack.

It was said at the time that the respective Tory chancellors did not understand the impact of their measures on incentives and wealth creation, complaints they arrogantly waived away with the usual bromides about those with the broadest backs carrying the heaviest load.

If that’s how bad it was around 2023/4, what is happening now?

We are left to ask how much worse it will have gotten during the 2024/5 tax year.

This is even before most of the measures taken in the October 2024 Budget kick in, and indeed before certain measures from the Tories’ 2024 Spring Budget kick in (such as the withdrawal of the Furnished Holiday Lettings Regime).

How much worse will it start to get in 2025/6, when all of the Tories’ and Labour’s tax-increasing measures have kicked in, and Labour have driven the UK economy into the dust?

Governance of the UK economy

We – tax-liable persons in the UK – are entitled to ask why none of this was visible to the government, HM Treasury, HM Revenue & Customs, the Office for Budget Responsibility or the Office for National Statistics until now.

Were the Office for National Statistics unable to track this through their information-gathering for the purposes of defining Gross Domestic Product and all their other outputs?

Were HM Revenue & Customs unable to track this through their overview of VAT and discern trends like de-registrations, smaller net payments in, and larger reclaims, indicative of reducing activity and profit margins?

It is seems incredible that this development has gone under the radar of all of these authorities.

But then it has long been apparent that there was one economy discernible by the different authority bodies charged with the management of the economy – the government, HM Treasury, HM Revenue & Customs, the Office for Budget Responsibility and the Office for National Statistics, and not forgetting the Bank of England – and a quite different one discernible by the people who work in the economy.