Tomorrow's Budget takes place on the day George Osborne is predicted to receive some unwelcome news about the state of the UK economy, with an unexpected increase in public sector borrowing likely to be announced by the Office for Budget Responsibility (OBR).
The latest Ernst & Young ITEM Club report anticipates a rise in public sector net borrowing to more than £88bn, compared with the £80bn the Chancellor forecast in his autumn statement. It says the OBR will revise down its GDP forecast for 2013 from 1.2% to just under 1%.
Against this background, few commentators are expecting much of a tax 'giveaway' in the Budget, although Chris Morgan, head of tax policy at KPMG, says 'faster progress towards the coalition's target of a personal allowance of £10,000 would be a welcome measure and a likely headline grabber.'
Some of the Chancellor's Budget announcements have been trailed earlier, such as new rules on tax disclosure relating to procurement contracts, final details of the General Anti-Abuse Rule (GAAR), and reductions in the headline rate of corporation tax, which some feel could be lowered to 20% by 2015.
KPMG is also predicting that the Chancellor will announce targeted anti-avoidance measures in the Budget seeking to address specific types of tax planning, and that there may be concessions on the operation of the RTI system for PAYE, perhaps allowing smaller organisations to report data monthly.
PwC says it expects a fairly neutral Budget, but possible options could include an extension of the Patent Box and 'small profits' rates, in order to reduce corporation tax levels, as well as changes to capital gains tax to encourage longer term investment. Bigger surprises would be the promise of a review and overhaul of inheritance tax, or the introduction of a pay scheme for private sector employees, where they receive tax relief on a proportion of their salary if their employers exhibit growth.
Bill Dodwell, head of tax policy at Deloitte, expects the Chancellor to announce a consultation on the introduction of anti-avoidance provisions limiting the use of partnerships to reduce artificially overall tax liabilities. He says potential areas for review could include the use of companies in partnership with individuals and disguised employment arrangements.
Baker Tilly's pre-Budget comments suggest moves towards the so-called 'Mansion Tax' could figure on the Chancellor's list of innovations, perhaps via changes to council tax payments, along with taxes or proposals to tackle 'green' issues, such as enhanced capital allowance for manufacturing equipment used to make low emission cars.
George Bull, senior tax partner at Baker Tilly, said, 'I think there will be some very obvious themes in the years Budget - stamping out tax avoidance will feature strongly. But, more importantly, there are no big "tax levers" for the Chancellor to pull to start economic recovery. Indeed, the Chancellor will have to tread very carefully to ensure that the economy doesn't lose more momentum as a result of any announcements made on the day.'
