Emergency Budget 2010
The emergency Budget promised during the election process has been set for 22 June 2010 when George Osborne will set out the first spate of economic strategies intended to bring the country’s financial affairs more into balance. In addition to the strategies that will be embodied within the budget there is already on the table a commitment to speed up the process of reducing the budget deficit and the Chancellor has already made a commitment to reduce this by a policy of cutting out perceived waste of some £6 billion in the current year. It is thought that this process will be with almost immediate effect.
There is inevitably much speculation as to what the budget will contain and uncertainty is heightened by the knowledge that the new coalition will need first of all to fully appraise itself of the state of the nations finances. There are some indications of likely areas that will be addressed which result from the compromise agreement reached during the coalition process and which dealt with a number of areas which were to be the subject of attention. Whilst it is not possible to accurately forecast what will happen in the budget there are a number of areas that are likely contenders.
There is speculation that there will be an increase in the level of VAT progressively over the next few years and it is hotly tipped that the rate will increase from 17.5% to 20% in the current budget. The expected tax yield would be in a figure approaching £12 billion per annum (an average annual cost of £425 for every household) and yields could be expected with immediate effect. Further increases above this level are possible but that is considered unlikely in the immediate present given the dangers of over-deflating the economy and tipping it back into deeper recession.
Any changes in this area are thought to be less immediate and any announcements are more likely to affect personal allowances and tax rates in the following tax year commencing 6th April 2011. Specifically increases in personal allowances are hotly tipped to raise the personal threshold to potentially £10,000 but over a period of time. Whilst this will ease the tax burden on certain categories of taxpayers the likelihood is that the thresholds for higher rates of tax will be lowered with the possibility that overall there could be increased tax revenue from these changes.
CAPITAL GAINS TAX
Currently the first £10,100 of capital gains are exempt from tax and there are suggestions that this threshold could be dramatically reduced even to a figure of £2,000 thus triggering increased liabilities to capital gains tax. The rate of capital gains tax (with the exception of business assets that qualify for entrepreneurial relief) was set at 18% by Alistair Darling where previously it had been subject to an individual taxpayer’s income tax rates. There is the possibility that measures could be taken in the budget to once more add capital gains to a taxpayer’s income and potentially tax it at higher rates currently at a maximum of 50%.
There had been a long held commitment by the Conservative administration to increasing the tax free threshold to £1m. The decline of the economy over recent months prompted Kenneth Clarke to comment that this had become more of an aspiration than a commitment and no material increases if any are expected in the current threshold for inheritance tax where presently the first £325,000 of a deceased persons estate does not fall into charge to Inheritance Tax.