Mr Brown gives us his tuppence-worth

Could he give tuppence for our financial welfare or is it just a case of robbing Peter to pay Paul? Cutting both income tax and corporation tax by 2p was a grandstanding political gesture in the Budget 2007, yet these benefits and other key measures do not come into effect until April 2008. In his 11th and most likely, final budget speech (that has a distinct pre-election feel), Stalin, aka Gordon Brown, demonstrated that he has refined the 'giving with one hand and taking with the other' down to a fine art.

The 'rabbit out of the hat' at the end of his speech - to deflect and delay closer analysis? - amounted to an announcement that income tax was to be cut by 2p. This is effective from April 2008 and is the lowest rate for 75 years, said Mr Brown. As always, though the devil will reside in the detail. Examination of the finer points of the budget, usually never disclosed or quickly glossed over in the speech, will doubtless reveal, if past experience is a guide, that our money has just moved from the left hand to the right hand pocket and back again.

Two per cent hides a multitude of sins

The basic income tax rate is to be cut from 22% to 20% but the lower rate of 10% is to be abolished. The higher income tax threshold (currently £33,300) will move up to £43,000 in 2009. But we will find these fiscal benefits clawed back by higher levels of National Insurance contribution (NIC). The planned alignment of NIC with income tax thresholds could mean some people will be worse off and certainly complicates working out who ultimately will be winners and losers.

The Wednesday budget was preceded by Browns Black Tuesday. With Civil Servants condemning his communistic ruthlessness, publication of the worst inflation figures (retail price index up by 0.4% to 4.6% in February) since August 1991 and a drubbing in a political opinion poll, Brown probably had to be bullish. A steep rise in air fares significantly contributed to annual consumer price inflation climbing back to 2.8% last month.

Transport

Brown can take some of the credit for this; his doubling of air passenger duty in December adversely impacted air fares. Thus the green section of his budget speech promised no tax on flying as well as confirming the expected increase in road tax for polluting, gas-guzzling 4 x 4s. The vehicle excise duty (road tax) for cars in band G purchased since last April increases to £300 next month and to £400 next year. Interestingly, although he categorically stated that inflation will fall to 2% before the end of the year, the Chancellor has raised fuel duty by more than the rate of inflation; from October there will be a 2p per litre increase.

Business

As with the income tax revelations, deckchair-shifting (maybe not of Titanic proportions) was in order for the business sector. Corporation tax will be reduced to 28p, to give Britain a competitive edge over other major economies, yet the tax on small companies will be increased in three stages from 20p this year to 22p in 2009. Capital allowances will be reformed, with a new 20% rate and a 10% rate for long life assets. The reduction in the main rate of corporation tax will benefit larger companies but small businesses (a vital part of the economy after all) may feel theyve been shabbily treated. Comfort might be found in the increase to 175% (from 150%) for the rate of Research & Development tax credits for small companies. Also there will be an annual 100% investment allowance of £50,000.

23 March 2007 © Moneyextra.com

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