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Increases in National Insurance Contributions for higher earners and a windfall tax on the oil industry are just two of the stealth measures to raise money predicted by chartered accountants, MacIntyre Hudson for Alistair Darling's first budget on March 12th.
The firm's Budget Report odds table shows NI increases as likely at 2-1, closely followed (at 3-1) by a windfall tax on the oil and gas sector. Most likely outcomes are forecast to be: no retreat on taxing non-doms and a tax on plastic bags - both set at evens.
Other potential outcomes listed include: Reduction of pensions tax relief for high earners (4-1); increased VAT on luxury goods (5-1); and the reintroduction of Car Purchase Tax (8-1). Reduced tax relief on redundancy pay is regarded as a huge outside bet at 50-1.
The firm is predicting that the Chancellor will raise the rate of National Insurance Contributions above the Upper Earnings Limit (£34,840) from 1% to 2%. He might also introduce higher supplementary rates for top earners, such as a 3% charge on earnings above £100,000.
Nigel May, Tax Principal at MacIntyre Hudson, says the chief attraction of this move is that it would only affect higher earners - those earning more than £670 a week - so wouldn't ruffle the feathers of core Labour voters. Any move is likely to be deferred for a year, demonstrating the Chancellor has a strategy to tackle the budget deficit without further depressing the economy at this critical stage.
On the Stamp Duty front the Chancellor is forecast to raise the threshold from £125,000 to £150,000 and to introduce two new bands of 5% for property over £750,000, 6% for property over £1 million.
Over the past decade, Stamp Duty has proved to be Labour's golden goose, as rising property prices have pushed more transactions into the higher bands. Yet now, both property prices and transactions are falling, threatening a serious loss of revenue. Faced with the Conservatives' plans to abolish Stamp Duty for first-time buyers of properties valued at up to £250,000, Darling could introduce a similar crowd-pleasing measure at the lower end, whilst still seeking to milk the cow at the top of the market.
Another possible initiative could be to limit tax relief on pensions - MacIntyre Hudson in this case forecasting the Chancellor will reduce the maximum pension contribution eligible for tax relief from £225,000 to £100,000.
Darling will be keen to encourage everyone to pay into a pension, in order to minimise the number of people requiring benefits later in life. However the new pension regime introduced on 'A-Day' in 2006 gives high earners tax relief on contributions of 100% of salary up to an annual maximum of £225,000. The Chancellor may characterise the natural reaction of high earners in using this flexibility as an abuse of the system and limit this relief.
Patrick King of MacIntyre Hudson says: "The Chancellor can argue that nobody making contributions at that level is likely to end up on state benefits in retirement, and so a lower limit would protect the state's interests while minimising opposition, at least from traditional Labour voters."
King notes that Gordon Brown has handed Alistair Darling the ultimate hospital pass.
"With the new Chancellor's previous attempts to raise money through Capital Gains Tax and a levy on non-doms largely in tatters, his priority will be to raise money without damaging an already fragile economy."
Chances are many of us will be poorer for it.
04 March 2008 © Moneyextra.com
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