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Thursday, 28 November, 2002, 15:24 GMT
Pre-Budget report: Digesting the measures

All Budget and pre-Budget speeches tend to leave unanswered questions.

Here are a few thoughts on what wasn't said and what therefore might be coming up next time.

The Economy

More borrowings in the pipeline and no immediate signs of tax increases... but if all does not go well over the next year or so, further tax rises beyond the National Insurance rises scheduled for April cannot be ruled out.

Business tax

The fairly major reforms to Corporation Tax are still being considered. If carried through these could result in shifts in the tax burden between sectors - for example, reduced capital allowances could hit manufacturing at the expense of the service sector.

The current mish-mash of different rules for pension tax relief needs rationalisation

This is definitely an area to watch. Oil companies welcomed the abolition of the royalties they pay on North Sea oil productions (some compensation for the extra tax levied last April).

But foreign companies who operate in the UK through branches (typically banks) will be disappointed that changes to their tax regime are not going to be watered down as hoped. The extra cost could well affect viability.

Value Added Tax (VAT)

The document on "protecting indirect tax revenues" sets out what to me is quite a shift in direction of the way Customs & Excise will tackle losses of VAT and duties.

Not that they haven't always pursued defaulters - but you can see a different, more businesslike manner coming in.

Evaders beware - and let's hope the innocent aren't caught by more administrative routines.


Mr Brown talked about "simplifying radically" the tax treatment of pensions.

The current mish-mash of different rules for tax relief needs rationalisation.

The chancellor's comment that there are no plans to tax lump sums taken on retirement, nor restrict tax relief on contributions was welcome - clearly the chancellor's view (and mine) is that he needed to scotch rumours of change to avoid further damaging confidence.

Share schemes

There is a useful relief for companies who contribute shares to employee share schemes but this could be outweighed by the tightening of tax relief for contributions to employee benefits trusts (to attack abuses).

It is to be hoped that it does target abuses rather than impose a blanket constraint and thus discourage contributions.

Environmental issues

We had some greenish measures in the speech and it is good to see that the chancellor is well committed to consultation.

A general reform of archaic stamp duty is proceeding

The projected significant rises in Landfill Tax need to encourage recycling rather than adding to burdens on business.

Meanwhile the planned Lorry Road User charge is progressing - the intention is to make all lorries pay for use of roads in terms of distance travelled rather than simply charge only UK-registered lorries for their tax disc.

The dogs that didn't bark in the night

The inexorable rise in house prices is dragging more and more people into the Inheritance Tax net.

But no change was announced - the Chancellor is probably just sitting back and anticipating more revenues.

We did get some inkling of figures for 2003 to 2004, such as the blind person's allowance and the main earnings limit for National Insurance, but, as yet, we have no changes to the income tax bands.

It remains possible that the amounts of income subjected to the 10%, 22% and 40% tax rates will stay as now rather than increasing - which would mean a stealthy tax rise of course.

There had been speculation that the Chancellor would raise stamp duty to get more money from the housing market and help dampen house prices.

This cannot be ruled out for the future. Meanwhile a general reform of this archaic duty is proceeding.

Nor did we get any changes to the rules on domicile, which allow those whose real home isn't the UK to escape tax on non-UK income.

The issue hasn't gone away completely but it does seem as if there is recognition that trying to close what might be perceived as a loophole would overall cost the UK money as various wealthy foreigners (including many footballers?) took their talents and investments elsewhere.

And finally...

Often a Chancellor takes the opportunity to whisk a populist rabbit out of the Budget hat - ranging from Norman Lamont's tax on mobile phones through to Gordon Brown's abolition of TV licence fees for the over 75s.

We didn't get one this year - apart from a reannouncement on bingo tax - perhaps we deduce that life is too serious for such gestures nowadays.

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See also:

27 Nov 02 | Business
20 Nov 02 | Business
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