With the economy on a an almost guaranteed path to recession, the financial sector on which so much of the UK economy is based, in tatters confidence at an all-time low, Chancellor Alistair Darling is expected to pull something dramatic out of the bag to bring some semblance of normality back to the markets and a much-needed boost to the UK economy.
Gordon Brown has hinted at large-scale tax cuts in the pre-budget report (PBR) and is urging Governments around the world to introduce fiscal stimulus plans. The IMF managing director has stated that the value of each country's package should be around 2% of GDP - equating to around £30 billion of tax cuts in the UK.
Top of the list will be tax cuts for low earners, help with winter fuel bills for low income families and concessions for small businesses.
The notorious 10% tax band could be making a comeback after its abolition, and sort of temporary reinstatement, last year. Planned increases in corporation tax could be scrapped in the face of the current turmoil.
Here’s a wish list
- Cut VAT from 17.5% to as low as 12%.
- Reduce employers' National Insurance Contributions (it’s a tax, we know it is, and it’s a tax on employment) from 12.8% to 5%. This would encourage employers to take on more employees or perhaps, in current circumstances, make fewer redundant.
- Reduce the standard rate of NIC for employees from 11% (for those contracted in) or 9.4% (for those contracted out) to 5% for weekly earning between £105.01 and £770. This would have the effect of encouraging consumption in the economy and help the lowest paid most..
- Raise the stamp duty nil rate band on residential properties to £1 million to get the property market moving again, for a fixed period, say twelve months.
- Reduce the small companies corporation tax rate from 21% to 12.5% to stop the flow of companies relocating their registered offices to the Irish Republic and other low tax regimes (Ireland's rate is 12.5%).
- Restore the rate of income tax relief on Venture Capital Trusts back to 40% to encourage investment in higher risk companies
- In the current environment where the “big Bonus” culture is so unpopular, an increase in the income tax rate for those earning over £100,000, say 50%.
Given the current economic environment there is an even greater need to ensure stability and certainty for the UK tax system. Any further tax changes need to be thought through, another 10% tax rate fiasco would be even more disastrous than before. It is essential that the Chancellor presents a clear and coherent strategy for the UK tax system and the economy as a whole.
It is likely that the markets will give their verdict within minutes. Be bold Chancellor, Be bold.