The Treasury has confirmed that the newly appointed Chancellor George Osborne will present his emergency Budget on Tuesday 22 June, less than six weeks away after the new government has taken power.
Although a number of the government’s flagship tax policies were revealed in the Coalition Agreement there are many difficult choices that have yet to be made, for example whether or not VAT will rise. Entrepreneurs will also be eagerly awaiting details of the proposed increases in capital gains tax and the proposed reliefs.
It’s Budget week and all eyes are on chancellor Alistair Darling, who needs to pull a metaphorical rabbit out of his red case.
While my email inbox is stuffed full of releases outlining potential measures that may or may not appear in the statement, this morning I received something a little more interesting from Dr Stephen Barber, a leading economist, who advises Selftrade. He says:
With the prime minister poised to go to the Palace, there hasn’t been a Budget quite as politically sensitive as this one for eighteen years. Then it was the ill fated Norman Lamont whose politically clever but economically irresponsible Budget helped John Major’s conservatives win the 1992 general election against the odds. We have to go back to more than 20 more years to find similar circumstances ahead of an election. Here, the great Roy Jenkins, then a Labour chancellor taking over from Callaghan following devaluation, delivered a Budget which was the height of economic responsibility. But his party lost office unexpectedly in the 1970 election.
After much speculation on the date of this year’s Budget, Gordon Brown has finally confirmed that the Budget will be delivered in two weeks time on 24 March, fuelling speculation that there will be a general election on 6 May.
The forthcoming Election will have an affect on what’s in the Budget of course, and there are many that would argue that the first 2010 Budget will be largely forgotten about, but it shouldn’t be ignored entirely.
Accountants Grant Thornton have come up a list of 10 Budget predictions:
1. More measures to reduce unemployment
It is expected that further measures will be taken to help both 18-24 year olds and the long-term unemployed back into the work force to help rebuild the economy. It remains to be seen whether any jobs created under the current government schemes will be real, sustainable jobs, or if we are simply returning to the days of previous recessions where there were a multiplicity of ‘schemes’ for young people, few of which led to lasting employment.
2. VAT to remain at 17.5%
We expect VAT to be left alone in this Budget. However, there is no doubt that any new Government of whatever political persuasion will consider that our comparatively low standard rate may need to be increased in the near future to reduce the spending deficit.
The gap just keeps getting wider! No, not the gap between rich and poor – some of today’s National Insurance and income tax allowance measures for high earners will help to close that (not to mention the bank payroll tax). And not the gap between private and private sector pensions – measures to cap public sector employer contributions should make them less outrageously advantageous (although pension campaigner Dr Ros Altmann points out that the cost of public sector pensions will still rise by 45 per cent next year, cap or no cap!).
I refer to the yawning gap between income tax and capital gains tax (CGT).
Income tax for high earners will hit 50 per cent from next April, and today we learned that National Insurance on earnings above £43,000 is going up to 2 per cent from April 2011, not 1.5 per cent as previously announced. That’s a marginal rate of 52 per cent in 18 months’ time (National Insurance is nothing but income tax in a fluffy disguise). But capital gains tax was left completely unchanged in the pre-Budget report, at a flat rate of 18 per cent – contrary to many predictions.
That’s a gap of 34 percentage points – the widest in living memory (well, my memory, at least).
But before you try the – theoretically legal – wrapping up of profits in a company structure to take earned income as a capital gain, bear in mind that the Transaction & Securities legislation is coming. Consultation on anti-avoidance measures closed on October 31, but don’t be lulled into thinking that the chancellor forgot about it in today’s statement.
Although he had time to announce measures today, HM Revenue & Customs says he’s waiting until Budget 2010. If there isn’t an election before he gets to deliver one…
Contrary to city rumours, which had the date down as December 2nd, the Chancellor has announced that his much-anticipated Pre-Budget Report will be delivered on 9th December.
Alistair Darling is widely expected to either extend the hikes we are already expecting, or introduce new tax raising measures. He is not likely to be able to provide many treats. However, there are a few measures that could help assist the economy and potentiall encourage a return to growth.