There’s a good deal of consensus that government borrowing needs to come down. Increasing tax revenues is part of the solution. But with no sign of a recovery to boost tax revenues, the pressure to raise tax rates remains. So what news will George Osborne deliver in his budget speech on 21 March?
Abolition of the 50p tax rate? This doesn’t affect most of us, but grabs many headlines. Many Tory MPs want it, but will they want to keep their Lib Dem colleagues (and voters) happy?
Raising the income tax personal allowance to £10,000 would be a popular move and the ruling parties have agreed to do this by 2015. It would certainly help low and middle earners, many of the former being in fuel-poverty.
Another option is a cut in national insurance rates. Surely though, a cut in income tax rates would be more “visible” and win more political points. With the latter not being touted, a cut in national insurance must be unlikely.
As for the two big “money spinners”: VAT and fuel duty, it’s anyone’s guess. Promised rises in fuel duty have already been postponed, and VAT rate reduction is contrary to past Tory promises. If I were a betting man I’d be backing something else.
Government think-tanks have been pushing for a further drop in the main rate of Corporation Tax from 26%. It’s already at its lowest I can remember, but last year the chancellor promised a further 3% reduction within 2 years.
What about a tax on expensive homes: often referred to as a “mansion tax”? The Lib Dem leader believes this could pay for tax cuts in other areas. This would be widely popular, but doesn’t get much, if any, support from his Tory colleagues.
My prediction is that whatever we get on 21st March, most of us will lose more. Perhaps all we can hope for is that the pain is distributed sensibly and fairly.
Steve Vickers, Tax Partner at Hart Shaw
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