I used to look forward to the Budget. You could not be quite certain what the Chancellor had up his sleeve. Nigel Lawson promised to eliminate one tax in each of his Budgets – he axed some I did not even know existed. Contrast that with Gordon Brown who has more than doubled the number of individual taxes. But, these days, you have a pretty fair idea of what is going on before he stands at the despatch box.
Yet this Budget could be interesting for a number of reasons. First, it is breaking with tradition by taking place on a Wednesday. Second, the Chancellor will be reporting a record annual surplus. Finally, but by no means least, it is almost certainly the last Budget before the next general election. No doubt, the Chancellor, who has just turned 50, will have those few extra votes in mind when he announces his measures. Can we expect anything radical? Personally, I doubt it. Even if he is tempted off the path of prudence and gives something away, he is just as likely to take it back with the other hand. In the case of capital taxes and pensions, it might be wise to get your retaliation in first.
Stakeholder comes into being in April. No doubt, the Chancellor will want to see it off to a flying start. Perhaps more important, he has shown he is quite prepared to change the rules on pensions. Witness the covert extra tax introduced when he ended advance corporation tax. This move has contributed hugely to the vast surplus he now has available. I would not put it past him to end tax relief on contributions for higher-rate taxpayers. They are a sufficiently small part of the electorate for him not to worry unduly and, if such a move was coupled with some sort of handout to pensioners, I imagine it would sit quite nicely in New Labour's policy. It may be wise to make sure certain clients' pension contributions are up to date before he stands up next week.
While capital taxes may be given a miss on this occasion, you can be sure of one thing – they are unlikely to be made any easier. Once again, trade bodies and other interested parties are calling for a simplification of the capital gains tax system but I would not hold your breath. Inheritance tax could even be tightened further. In some ways, it remains a voluntary tax and one where those best able to afford good advice can arrange their affairs to minimise its impact. Taking evasive action in this area is rather more difficult in the timeframe still available but it is worth thinking about.
Unfortunately, the area of savings and investment is unlikely to see much innovation. One helpful move would be to allow Pep funds to be rolled into Isa accounts. From the next tax year, the investment restrictions that differentiate Peps from Isas will be removed, so there seems little reason why the two should not be merged. It would simplify life for the administrators considerably and would provide a marketing bonanza for IFAs, which is probably why it will not happen.
Could this be the Budget where some form of tax concession is given to those who save and invest? In the 1960s, we suffered from the investment income surcharge which meant those with share dividends or bank interest paid an additional 15 per cent tax, bringing the top rate to 97.5 per cent of income for the highest earners. Governments now recognise the need to encourage people to save, so proposals like those put forward by the leader of the Opposition are no longer out of court, even for a Labour administration.
The problem with making predictions is that too soon you can judge the accuracy of your forecasting. We will all know soon enough. In the meantime, I am packing my toothbrush and am off to see how they do business in the good old USofA. Expect some interesting revelations on my return.