Are we about to face the Budget music?
By John Whiting
Tax partner, PricewaterhouseCoopers
Many Budget details are not included in the speech, John Whiting says
The great composer Beethoven only managed nine of them.
But on Wednesday 22 March, Gordon Brown will go one better and reach his 10th.
We are talking Budgets rather than symphonies, but they have some similar features:
- normally four movements - economy, spending, taxes, support for the less well off
- carefully orchestrated, rapid fire delivery
- some repeated themes or motifs - how well the UK economy is doing vis-à-vis our neighbours or competitors; coverage of families, pensioners, overseas aid, enterprise and skills-building
- a particularly catchy tune to set people whistling - some headline-grabbing measures
Economy and spending
The UK's growth slowed in 2005, although it was still higher than the eurozone's.
Likely growth in 2006 is about 2.25%, with 2.75% or so in 2007 - the UK's economy is still doing tolerably well.
Meanwhile, public spending growth is set to slow progressively from now on.
No doubt the chancellor will try to squeeze out a little more for some sectors - overseas aid and the armed forces have to be candidates.
Accordingly, there seems no particular need to raise taxes in the Budget.
In fact, the December Pre-Budget Report (PBR) introduced net tax increases of about £2.5bn, mostly through higher taxes on North Sea oil companies.
If there is no need to raise taxes, that doesn't mean there will be no changes.
For a start, there is a need to set the levels at which income tax bands operate.
The chances are there will only be modest rises, meaning fiscal drag will operate to bring more taxpayers and more income into the 40% tax rate.
Similarly, there will be a rise in the capital gains tax annual exemption, currently set at £8,500.
Many would like to see inheritance tax (IHT) reformed significantly as its burden becomes more widespread on the back of rising house prices.
However, the way in which the IHT thresholds for 2006/07 (£285,000) and 2007/08 (£300,000) were announced last year suggests that is all the action we are going to get on IHT at present.
Savings and investment
There are a number of things to look out for here:
- the final rules on Real Estate Investment Trusts (REITs) which promise a useful new investment vehicle for those wanting to invest in property, probably from January 2007
- whether the current 40% tax relief for investing in Venture Capital Trusts will continue after April this year
- possibly an indication of thinking on Individual Savings Accounts (ISAs) in terms of what is likely to happen after the current system expires in 2010.
No doubt there will also be something on Child Trust Funds, possibly on extra money for them but more likely on measures to boost take-up.
The PBR made a major change to the tax credit system with the significant increase in the "income disregard" - the amount by which incomes can rise before credits are clawed back.
This will probably be built on with some administrative simplifications, possibly with the early announcement of increases in credit amounts for 2007.
There is an increasing need to look at how attractive the UK's tax system is when it comes to attracting and retaining investment.
To some, it seems we are slipping down the international league.
However, changes in the business sector are likely to be focussed on smaller companies.
We may see, for example, greater allowances for research and development and capital investment.
There will no doubt be moves to simplify the tax administrative burden on smaller companies.
That will be welcome, though it will prompt two reactions: "Will the simplification really be delivered?" and "don't large businesses also need their administrative burden reduced?"
Some "green" measures may well feature.
One candidate is the modifications of company car charges to encourage "green" cars, paralleled by further moves in this direction on vehicle excise duty (the tax disc).
Running the tax system
Look out for announcements on the powers of the taxman - this may seem a bit of an arcane area but modernisation is very necessary on the back of last year's merger of the Inland Revenue and Customs & Excise to form HM Revenue & Customs (HMRC).
One issue that HMRC are trying to tackle is "carousel fraud" - loss of VAT when goods such as mobile phones are routed in and out of the UK, usually with VAT being charged but not paid over to HMRC.
Other parts of the EU face the same problem so there may an announcement of a euro-solution.
The final flourish
So what will be the giveaway?
Last year saw help for pensioners with council tax bills.
No change to council tax itself is likely before the Lyons review reports (probably at the end of this year) so a repeat of last year's measure seems on the cards.
For a new idea, how about something orientated towards the 2012 Olympics?
But to return to the music, perhaps where that analogy breaks down is that, with a symphony, what you hear is what you get.
With a Budget, there is always a huge volume of supporting papers that emerges when the chancellor sits down, which need analysis to sort out who is really facing the music.
The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.