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Last Updated:  Wednesday, 9 April, 2003, 14:36 GMT 15:36 UK
An 'espresso' Budget
By John Whiting
Tax partner, PricewaterhouseCoopers

Before this Budget I suggested that Gordon Brown's speech might have something of an espresso theme.

I think in the event I have been proved right - and in many ways it was a bit of a reheated espresso, given the proportion of reannouncements we got.

We got the darkness - the economy is not doing as well as it has been and borrowing is on the increase.

But we also got a lot of confidence-boosting lift from Mr Brown, to make us feel better - our economy is better than most others and fundamentally it's still in a good state.

Looking into the grounds at the bottom of the espresso cup, there are inevitably a lot of tax changes swirling about.

And as always these range from the big to the small and include a few things that weren't immediately apparent when you first gazed into Gordon's brew.

Tax changes

The large side includes the commitment to reform Stamp Duty, modernising this archaic duty.

There were giveaways for disadvantaged areas (which we already knew about) but some anti-avoidance measures threats to increase overall the Chancellor's take from a tax he clearly likes.

I doubt whether property companies are as happy as the Chancellor with the prospect.

There was a good deal about the Tax Credits - though in point of fact there wasn't any new money announced.

It's clear, though, that Mr Brown wants us all to take these up as far as possible (90% of families in the UK are eligible for example) and the Pensioner's Credit, due in October, will genuinely help many more pensioners - if they claim it.

Jobseekers also got some modest help and a nice change was the abolition of the claw back of pensions for pensioners who go into hospital for a long spell.

We'll have to wait to see how the plan to simplify radically the tax treatment of pension contributions will go ahead next year.

The possible reform of corporation tax didn't get a mention either.

But the idea of reforming the tax treatment of people who are resident here but not domiciled is being progressed with a formal study.

Although it may look superficially attractive to block a "loophole", he runs the risk of scaring away some wealthy foreigners who would otherwise come here to invest and spend, so this needs a lot of care.

Smaller steps

On the smaller side, there was the usual evidence of the chancellor's inveterate tinkering.

Minor changes to capital allowances, such as a continuation of the 100% allowance for IT spend by small businesses will help.

So will the commitment to widen the ambit of the research & development tax credits.

But these are still tentative moves, albeit in the right direction.

The inflationary rises on tobacco, beer and wine duties will deliver him a little extra money, particularly when coupled with the extra enforcement measures the Chancellor is trying.

But spirits drinkers - and makers - will no doubt raise a glass to the freezing of that duty, as will drivers, though rises there may just have been postponed.

We got the children's trust fund launched at last, after one of the longest pregnancies on record. An endowment of 250 - 500 for the less well off - will roll up to the 18th birthday.

But will it just fund some great 18th birthday parties?

And the subtle

Some subtle changes will add to the Chancellor's coffers.

We didn't see any significant rise in Inheritance Tax (just a 5,000 increase) - so more people will be dragged into its net thanks to rising house prices.

Income tax thresholds - the points at which you start paying 22% or, importantly, 40% income tax - didn't go up much for this tax year, causing more income to fall into higher tax brackets through "fiscal drag".

Fans of ISAs looked in vain for a promise to extend the ability to reclaim the dividend tax credit which phases out next April.

Has Gordon fallen out of love with his creation?

There were some tweaks and twiddles in the bundle of 62 press notices from the Inland Revenue and Customs & Excise. Some anti avoidance around offshore insurance bonds for example.


Thankfully, there were some little sweeteners in what might otherwise have been an uninspiring or even bitter brew.

There was some small help for home workers who can get 2 a week tax free from employers to cover costs more easily.

And, wonder of wonders, the famous annual staff Christmas party tax concession is doubled - so that's 150 a year per head, hopefully from Christmas 2003!

So, at the end of the speech, a palatable brew and certainly better than the bitter aftertaste of last year's NIC-flavoured effort.

The speech also had one other key feature of the espresso - it was relatively short!


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