UK's Pre-Budget Statement Prefigures Tax Increases

by Jason Gorringe, Tax-News.com, London

28 November 2001

In his much-trailed Pre-Budget speech to Britain's House of Commons yesterday, Chancellor Gordon Brown shocked the City by predicting that this year's forecast £5bn surplus would turn into a £2.5bn deficit, with a borrowing requirement next year of £12bn. The public finances have been hit by disappointing tax revenues, which are expected to fall £6bn short of the Budget forecast mainly because of falling share prices and the drying up of merger and acquisition activity.

Mr Brown forecast next year's growth at 2-2.5%, and 2.75-3.25% the following year. His inflation target remains 2.5% annually.

Key tax measures announced in the speech include:

• Further cuts to capital gains tax from next April to 20% on business assets held for more than one year and to 10% for business assets held for two years.
• An extension of the research and development tax credit for larger companies in order to further productivity gains.
• The 10p band of corporation tax will be extended to help small businesses.
• A flat rate, simplified VAT regime will also be introduced, saving the average small business £1,000 a year.
• Stamp duty will be abolished from this Friday on properties valued at less than £150,000. Stamp duty on business property transactions will be abolished in deprived areas.
• The football pools tax will be abolished from April 1. The tax on pool companies will be 15 per cent on their gross profits.
• The enterprise management incentives scheme qualifying limit will be doubled to £30m gross assets.
• There will be an integrated tax credit and benefit payments system for children, to be paid to the main carer.

Given this raft of tax reductions, the predictions of growing public borrowing and the Chancellor's promise to spend more on the country's ailing National Health Service, tax increases now seem inevitable. It's just a question of how much and when.

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