Alistair Darling’s first Budget could not have come at a more difficult time. Expected growth has, as anticipated, been reduced to 1.75% - 2.25% in the face of an uncertain economic outlook and the prospect of, at best, a close shave with recession. There is no guarantee of recovery during 2009 and the prospect of an early election looks unlikely.
Chancellor Darling’s first Budget speech has also been seen as his chance to appease the City and the business community by demonstrating that he is listening. The announcement in the Pre-Budget report in October 2007 of proposed changes to both Capital Gains Tax and the taxation of non domiciliaries have brought virtually unanimous condemnation from the City and the business community, as unconsidered and economically damaging. The management of the process since the first announcements has done nothing to counter this view. The Budget has diluted some of the proposals but the changes arguably bring only limited relief.
Government borrowing is set to increase higher than anticipated as a consequence of the reduced tax collections arising from the changes to both corporation tax and income tax, introduced by Gordon Brown in his final Budget, together with lower VAT takings through reduced household expenditure, and lower Stamp Duty Land Tax through the slowdown in the housing market. The full implications of the Northern Rock nationalisation are still unknown.
Widely anticipated additional “Green Taxes” have been introduced including a proposed showroom tax on new cars along with increases in the cost of beer and wine 6% above the rate of inflation in an attempt to counter the drinking culture. Consistent with previous years, a number of these will not apply immediately, but will be phased in over a number of months.
The truly new measures announced in the Budget appear to be relatively low in economic impact, but as usual, the myriad of tax changes are hidden in the detail.
Click here to view our summary of the Chancellor's Budget 2008 Report and to download a copy of the 2008-09 Tax Rate Card.