Partner Article

March 19th – ‘A Budget for Votes’?

With Budget Day now only a month away – on 19th March 2014 – what’s likely to be in the Chancellor’s Red Box?

Fewer surprises than usual we hope; much of the content of the draft Finance Bill was published following the Autumn Statement early in December 2013.

We’ll be publishing our predictions for the Budget over the next couple of weeks. For now, it’s likely that the Chancellor will use the Budget Statement to map out a tax agenda for the run-up to the 2015 general election. A “Budget For Votes” if ever there was one. So tax changes with popular appeal are certain to feature in the Chancellor’s announcements.

While perceived tax avoidance by multi-national corporations is high on the public agenda, the OECD project on base erosion and profit-shifting will rely on international collaboration for its success. Although the UK is an influential international player, it cannot go it alone. That will provide cover for the Chancellor to await further developments at the OECD.

What about business taxes? Arguably, having already mapped out the future trend of UK corporation tax rates until 31 March 2016, the Chancellor doesn’t have any room to manoeuvre.

Increasing corporation tax rates to raise revenue would be the least business-friendly thing he could do, while reducing UK corporate taxes in the interests of attracting more multi-national businesses to the UK would bolster global criticism of the UK for driving a “race to the bottom” in international corporation tax rates.

So that leaves individual taxes. With more than a quarter of all income tax paid by just 1 per cent of taxpayers, and with the top 5 per cent paying around half of all income tax, we think it unlikely that the Chancellor will tinker with the 45% rate of tax or the £150k threshold for it. History tells the Chancellor that making changes in this area produces even more outcry than doing nothing.

Which brings us to the 40% income tax rate. Currently, income tax at 40% is paid on taxable income above £32,010 – the basic rate limit. After taking the personal allowance into account, the effective 40% threshold is £41,450. While governments of all persuasions do nothing to dispel the notion that 40% taxpayers must be high earners, fat cats even, the sobering truth is that (with the national average wage now at £24,856) many middle-income families who have to budget carefully to make ends meet find that they are paying income tax at 40%.

At the same time as the personal allowance has increased, the basic rate limit has been reduced from £37,401 in 2010/11 to £32,010 in 2013/14. If the Chancellor is to make a single, dramatic gesture to win middle-income voter support, then an increase in the basic rate limit is looking increasingly likely. Perhaps to £35,000?

This was posted in Bdaily's Members' News section by George Bull .