If various economists, such as PricewaterhouseCoopers’ John Hawksworth,
Global Insight’s Howard Archer and David Smith from Beacon Economic Forecasting
to be believed, the chancellor is going to have to find money from somewhere to
balance the books.
Experts have pointed to rapidly increasing public sector debt and
over-optimistic tax revenue forecasts as the reason for their pessimism. They
say the chancellor will either have to slash public spending or hike taxes to
make up the shortfall.
If this scenario is correct, then tax rises rather than spending cuts are on
The Gershon Review has already squeezed spending in Whitehall to the bare
minimum and opposition parties have blamed inadequate resources for the HM
Revenue & Customs disc debacle.
For me this leaves tax rises as the obvious way for the chancellor to plug
the budget gap. But where exactly will the money come from if the government
decides to go down the road of raising extra revenue from taxes?
Darling has been left with little room to manoeuvre, thanks to predecessor
Gordon Brown’s decision in 2007 to cut corporation tax by 2% and reduce the
basic income tax rate to 20% but only phase in the changes in 2008.
The capital gains tax rate, meanwhile, has already been raised to a flat 18%
and capital allowances have been tinkered with. So what can be expected?
Another windfall tax on oil companies now that Brent Crude has flirted with
the $100-per-barrel level? An increase in VAT rates? I am not saying that it
will happen, but don’t be surprised if it does.
Nicholas Neveling is a reporter on Accountancy Age
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