 Pre-Budget Report to be more about politics than economics
03 December 2009: The Chancellor’s Pre-Budget Report on 9 December is likely to be dominated by a return to traditional Labour values, according to accountants and business advisers PKF.
With the economy yet to formally emerge from recession and the 2010 General Election months away, the Chancellor will be obliged to set out tax and fiscal policies that clearly differentiate Labour from the other parties, predicts the firm.
Matt Coward, Director of Private Client Tax Services at PKF says: “Most economists agree that taxes will have to rise in the future so we may well see some eye catching traditional Labour moves to increase the tax burden on the wealthiest mixed in with more modest efforts to support business.”
Last year’s £12bn per annum cut in VAT is to be reversed on 1 January 2010 when the VAT rate returns to 17.5%. Alistair Darling will also press ahead with the 50% higher rate tax for those with incomes of more than £150,000 per annum from April, though it is unclear whether this will raise the hoped for amount of revenue.
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 | Matt says: “The Chancellor has already made it clear that significant further measures to raise tax are not on the agenda for now but he will want to show that he has a plan to bring government finances into balance in the medium term. This is why the Fiscal Responsibility Bill is going to be debated in Parliament with the Pre-Budget Report. It may also mean a number of consultation exercises on future tax rises are announced.” |
Matt predicts:
- The Chancellor may choose to cut some costs by reducing the upper income limits for means tested benefits such as the Child and Working Tax Credits – currently families with annual income of up to £66,000 can benefit from Child Tax Credits.
- A tightening of IHT allowances and exemptions for wealthier estates could allow a clear difference to be seen between Government and certain opposition proposals; for example, 100% Business property Relief might be limited to businesses worth £5m or less, with a lower exemption applying to more valuable businesses.
- The Chancellor may also propose substantial increases in environmental taxes over the course of the next Parliament. An increase in the current climate change levy is likely to be one option, with specific taxes targeting goods and services creating high emissions and further high taxes on cars also likely to be on the menu. Naturally, with the General Election in mind, any consultation document on such issues is not likely to be specific and leave the tough decisions until the new parliament.
- There may be an increase in the rate of capital gains tax to 25% from next April, though with a lower rate for the disposal of business assets. The difference between income and capital gains tax rates is significant and is already starting to influence taxpayer behaviour, as individuals seek capital gains rather than income returns.
- As an outside bet, rather than simply restricting higher rate [40%] relief on pension contributions for those on high incomes, such relief may be abolished – saving the Exchequer billions per annum.
And what of City fat cats?
Matt says: “The Chancellor has already made it very clear he favours the use of share schemes and options rather than bonuses to reward the higher paid employees of banks and city executives. A new type of ‘approved’ long term share scheme may be announced as a way to counter ‘the bonus culture’. However, a new special rate of income tax or NIC on large cash bonuses cannot be ruled out. Neither can it be assumed that such an increase will be limited to the banking sector.
“This will be one of the most political pre Budget reports we have seen in recent years, though the Chancellor will wait until the Budget to spring any rabbits out of his hat.”
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For further information, please contact:
Jane Murray, PR, 020 7065 0135, jane.murray@uk.pkf.com
Notes to Editors:
- PKF is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk.
- PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
- PKF (UK) LLP is a member firm of the PKF International Limited network of legally independent firms. The PKF International Limited network has more than 14,650 people operating in 119 countries around the world.
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