Crystal ball: 12 predictions for Budget 2013
Speculation that the country is likely to experience its first ‘triple dip’ recession this quarter, combined with the the loss of its prized AAA rating earlier this month, means this is likely to be a particularly difficult budget for the government.
Pressure is mounting for Osborne to kick start the economy, but he has been clear that he will continue to pursue ‘austerity’ as a policy.
In which case, how much room for manoeuvre has he actually got?
There have been massive changes to pensions over the last two years, with a reduction in the annual pension allowance from a gross amount of £255k to £50k in 2011, then again to £40k from 2014/15, as announced last year.
The lifetime pension allowance has also been cut, from £1.5m to £1.25m.
Baker Tilly argues that further cuts to the annual allowance (there has been speculation of a further reduction to £30,000) before implementation of the latest round would open the government up to criticism.
The personal allowance for 2013/14 was announced in the Autumn Statement at £9,440, which moved it nearer to the coalition’s flagship goal of £10,000.
A possible announcement in this year’s Budget is to raise the personal allowance to the magic £10,000 before the proposed 2015 deadline, or even raise it above that figure.
The coalition has already announced that the top rate of income tax for those earning £150,000 or more will come down this year from 50% to 45%. Analysts do not expect any further announcements.
Some commentators predict that the Liberal Democrats will twist the Conservative’s arm on the ‘mansion tax’ – an annual levy on properties worth more than £2m. But most analysts doubt it.
Labour recently adopted this as its own policy – angering Vince Cable in the process – and Jason Hollands from Bestinvest said this could provide leverage for the Lib Dems.
But Baker Tilly thinks the whole thing unlikely. The tax would be confusing and scary for elderly people in large houses but with low incomes, it said.
National insurance (NICs)
There has been a suggestion this Budget could see an increase in NICs for self-employed people, who currently pay a lower rate than employed people because they receive fewer pension benefits.
With the introduction of a £144-a-week flat-rate state pension on the way, there could be an argument to harmonise contributions. “It would be a cash-raiser and would be more simple,” said Francesca Lagerberg, head of tax at Grant Thornton.
But, generally, analysts think it is unlikely there will be any cuts or further announcements.
A decision to allow AIM shares to be held within ISAs, something the government flagged as possible in December, remains on the cards, according to Hollands.
He said it would be presented as part of a package of measures to support smaller companies. HM Revenue and Customs (HMRC) has also said it is considering whether to allow AIM-listed companies to be included within ISAs.
The government could reduce CGT for long-term investments such as buy-to-let properties, according to Baker Tilly. The current rate is 28% with no relief for indexation which means tax is paid on any inflationary gain at the higher rate of tax.
In addition, Axa Wealth argues that the government might introduce a CGT charge on death, even though that would represent a departure from the current stance.
Baker Tilly argues that some services might be moved from a standard rate to a reduced VAT rate in this Budget, such as window cleaning, hotels and restaurants to boost trade.
A spokesperson from accountancy firm Blick Rothenberg said that reducing the VAT rate from 20% to 5% on housing repairs and refurbishments could give a much-needed boost to the struggling building and construction industries.
Christopher Groves from international law firm Withers argued that non-doms have escaped the spotlight since 2010, but that the focus might change this Budget.
“There are only around 4,000 persons paying the remittance basis charge, so increasing it would not raise significant sums, but could the government now look to increase it again to score political points?” he queried.
The government has repeatedly stressed that it expects businesses to “play fair” and by the rules.
Tax specialists KPMG argued it is therefore likely that, notwithstanding the General Anti-Abuse Rule (GAAR), to be introduced later this year, there will be some targeted anti-avoidance measures in the Budget.
Andrew Watters, a tax lawyer at Thomas Eggar, also predicts measures against ‘tax dodgers’. He expects to see an increase in civil enquiries and the probability of criminal action where there is any suggestion that tax underpayment is deliberate as a result.
The Prime Minister has said that he favours recognising marriage in the tax system, a measure included in the last Conservative manifesto.
This could be back on the cards as he seeks to heal relations with those who were opposed to the recently-introduction legislation on same-sex marriage, according to Baker Tilly.
Small business support
With bank lending still constrained and pressure to kick-start the economy unabating, measures designed to support small businesses are expected.
This could see the extension of schemes designed to encourage the financing of smaller companies such as the Seed EIS scheme launched last year.
An increase in the number of companies eligible for Venture Capital Trust (VCT) financing and fund raising through Enterprise Investment Schemes (EISs) could also be announced, said Bestinvest’s Jason Hollands.
There will be full coverage of the 2013 Budget on Your Money on 21 March.