Top accountancy firms offer Pre-Budget Report predictions
08 October 2007
Tax expert Deloitte has issued a seven-point prediction plan for the Alistair Darling's first Pre-Budget Report, while fellow finance expert KPMG has also issued a host of areas to keep an eye on.
However, it is PricewaterhouseCoopers that has singled out the company car.
PWC predicts there are several possible areas the Chancellor can look at with company cars "including the consultation on 'modernising tax relief for business expenditure on cars' and discussions about Employee Car Ownership Schemes (ECOS). With general revamping of much of the capital allowances system coming in next year, it's quite likely that we will see proposals on cars coming forward. One idea that would fit well with the simplification theme would be to abolish the 'expensive car' limit of £12,000. Getting rid of this rule would save a good deal of administration and would in all probability be revenue neutral".
Meanwhile, Deloitte predicts:
1) This year's Pre-Budget Report (PBR) will have one aim and one aim only - to ensure that Gordon Brown reclaims the political initiative from the revived Conservative party. We expect some fairly large tax cuts purely intended to grab the headlines - these will be funded mostly by low-profile tax rises elsewhere.
2) It is possible that the Chancellor, Alistair Darling, will match exactly the Conservatives' pledge to cut inheritance tax and stamp duty at a total cost of £4bn. More likely, however, is that he makes his policies distinct by lowering the rate of inheritance tax from 40% to 30% or raising the £250,000 stamp duty threshold by £100,000. Together these measures would cost £2bn.
3) The corporate sector is also likely to be brought on-side. One possibility is a cut in the main corporation tax rate by a further 1%, which would cost around £1.5bn. Meanwhile, slashing the rate of capital gains tax from 40% to 30% could cost the Treasury around £1bn.
4) But by clawing back any tax cuts with some populist rises in green taxes and changes to the tax treatment of private equity, the Chancellor will aim to appear generous and fiscally responsible at the same time. Such measures, which may include hitting owners of 4x4 cars or the airline industry, could readily yield around £2bn.
5) An alternative would be to fund the measures intended to counter the revived Conservative party's pledges with a further squeeze on public spending. But Brown will not be keen to announce yet tighter spending constraints. As such, the spending envelopes that were already announced in March's Budget are unlikely to change.
6) If Darling cannot raise enough cash to fund his headline-grabbing giveaway, the result will be higher borrowing. The forecast for 2008/09 may rise from £30bn to £34bn, mainly due to a downward revision to his 2008 GDP growth forecast from a mid-point of 2.75% to 2.5%. But if growth were to come in at 2% next year, as Deloitte expects, borrowing would rise further to £37bn. And growth of 1% would see borrowing shoot up to £42bn.
7) Overall, the PBR will bring short-term political gain for long-term fiscal pain. This is a trade-off that Brown and Darling are willing to accept, but one that might return to haunt them.
KPMG's Sue Bonney, agreed with some of Deloitte's predictions.
"All too often tweaks to the law aimed at a specific set of circumstances hit a range of other scenarios. Indeed it's often the case that the legislation unveiled at Pre-Budget Reports and Budgets is subsequently amended or requires substantial clarification through detailed HMRC guidance.
"Green taxes are also flavour of the month. Climate change is moving up both business and Government agendas but it is not always easy to use tax as an effective lever with which to change behaviour. One measure that we expect to see is an extension of contaminated land tax relief to apply to brownfield sites - a move which might protect the environment by making greenfield sites relatively less attractive for development as well as helping, perhaps, to reduce the housing shortage.
"Maybe he will try to trump the Tories on inheritance tax - perhaps by exempting the principal private residence or family home."