The region’s business leaders have called on the Alistair Darling to make clear his plans to reduce the deficit when he stands up in the Commons on Wednesday.
While it is likely to be an unusual Budget so close to a General Election, head of policy at the Birmingham Chamber Katie Teasdale, said it was essential the Chancellor was clear about what the Government proposed to do to repair the UK’s economy.
“A deficit reduction plan should include a commitment to freeze the total public sector wage bill and a demonstration of how the Government plans to reform public sector pensions,” she said.
“Failure to do this will undermine both business and investor confidence. To sustain recovery, it is vital the Government assists firms to find new export markets and avoid cuts to organisations, such as the UKTi which provide essential support to companies wishing to export. To enable the rebalancing of the economy and to help West Midlands’ manufacturers we are calling upon the Government to avoid these cuts.”
Andrew Shaw, national tax managing partner for BTG Tax, part of the Begbies Traynor group, believes Darling will be a “Budget for floating voters”.
He said: “We’ve already had the 50 per cent tax band on income tax and I think after the election we will see both capital gains tax and VAT go up, but they can’t raise them beforehand. And, given the parlous state of public finances, they can’t give away much either.
“Petrol is due to jump 3p a litre in April but they might just defer that.”
However, the Institute of Directors has urged a clear trade-off with lower spending permitting looser monetary policy.
West Midlands chairman Richard Boot said: “The fiscal tightening needs to start sooner rather than later. You might think that a cut in public spending would reduce GDP but we need to look ahead to the second round effects. A fiscal contraction could benefit economic growth if done correctly. This is especially the case now, with the enormous budget deficit.
Johnathan Dudley, managing partner at Midland accountants and business advisers Horwath Clark Whitehill, feared the Budget would be in effect “a party political broadcast by the Labour Party”.
He noted: “It is going to be a case of – ‘you’re a pensioner; here’s some money and make sure you vote for us’.”
Lucas Markou, specialist tax partner at Solihull accountants Jerroms, warned that businessmen face a hidden threat in this month’s Budget.
“The Government could take the opportunity to slip in higher capital gains tax rates, hitting those who take risks and invest to grow their businesses.
“There would be no great outcry because few people are seen to be affected and because business and asset values have been dragged down by the recession to the point where even those affected by any hike in tax rates might not feel the pain initially.
“However, higher rates will remain for the future when values recover and much higher tax bills could follow.”
Rob Gunn, tax director at RSM Tenon, predicted a raft of new measures in next week’s speech.
“We are guaranteed to see the screws turned on the tax avoidance disclosure regime,” he said.
“Given that the 50 per cent tax rate will be introduced in a couple of weeks we do not expect any further changes to the rate of income tax to be announced. Changes to the pensions relief threshold could be a sign of things to come so a consultation on restricting all reliefs to basic rate is likely.”
He added that an increase in VAT was unlikely and that corporation tax could fall by one per cent but this was unlikely for at least 12 months.
Richard Rose, tax partner at BDO in Birmingham, said individual taxpayers and businesses should steal themselves for a frustrating period of uncertainty as party politics overshadow the uncomfortable fiscal imperative to raise tax revenues as a contribution, alongside significant public spending cuts, to curb the unsustainable fiscal deficit.
He said: “In the wake of the credit quake we have seen a £42 billion fall in tax collections.
‘‘This leaves the Chancellor very little room for any tax cuts to curry favour with voters but, equally, he dare not raise taxes significantly in a Budget held only a few weeks before a General Election.
“We can expect a ‘Phoney Budget’ on 24 March with any hard hitting, significant tax raising measures deferred until the second 2010 Budget.
“I fear that the March 2010 Budget is bound to be more about ‘Punch ‘n’ Judy’ politics rather than important fiscal reforms.
‘‘Sadly, it is almost unavoidable that taxes will rise after the election, in addition to cuts in Government spending, irrespective of the outcome. I am convinced that some tax rises are much more damaging than others and this should be a key area of the electoral debate. However, it is almost inevitable that we will need to wait until a second Budget to find out where the tax hikes will occur.”
Philip Cook, tax partner at chartered accountants Clement Keys, said the biggest challenge was to raise revenue without introducing measures that will deter business growth.
He said: “A rise in National Insurance Contributions for example may well reduce the deficit but will penalise those businesses that want to expand by taking on more staff. Research undertaken by the Federation of Small Businesses and the Centre for Economics and Business Research has estimated that a one per cent rise in NIC will cost 57,000 jobs in the UK; this would be detrimental to any recovery in business confidence.”
Property expert and tax partner Daniel Hartland, from Grant Thornton in Birmingham, said the Budget was unlikely to be “earth-shattering” but there was a chance that measures to benefit the private rented sector would be brought forward.
“The Government needs to address the shortfall of financing available in this sector given that the banks have significantly tightened the availability of credit. Businesses have needed to consider alternative methods of finance.If the Government fails to acknowledge this issue, more property firms will fail and the sector will continue to suffer.’’