PBR REACTION & ANALYSIS: WHO PAYS THE PIPER?

The Government is clearly very anxious to help businesses and individuals survive the recession. In the short term, the Income Tax proposals are favouring those on lower incomes, with a clear political statement that it will be those on higher incomes who will have to pay in the future. The big gamble, however, is whether the centrepiece of this statement, namely the short term stimulus of a temporary reduction in the rate of VAT will have the desired effect. Perhaps an even bigger gamble is to have produced growth forecasts which are both optimistic and challenging in the current climate. The only certainty appears to be that we are facing significant tax rises in future years to pay for what may turn out to be a “shot in the dark”.

The economy is entering uncharted territory with a level of borrowing that a year ago would have been inconceivable. The immediate problem for individuals and businesses will be getting through the next six months and in particular the Christmas shut-down. The Government appears incapable of ensuring banks provide the working capital finance that is necessary for even the most viable business to survive. In this context the offering of the tax collection agencies as an additional provider of finance could turn out to be the most important of all these proposals.

In the longer term one wonders how high Government borrowing will reach. An increase in rates for higher earners may have political implications but in terms of raising revenue it is relatively inconsequential. If the Chancellor’s forecasts are as optimistic as many suggest we can all look forward to a lively debate as to where the burden will fall. Will National Insurance again be the target for rises in excess of those already announced? Is an increase to a 20% VAT rate on the cards? A more intriguing possibility involves the Isle of Man and Channel Islands with the Chancellor ordering an independent review of their Crown Protectorate status.

For further information please e-mail This e-mail address is being protected from spambots, you need JavaScript enabled to view it This e-mail address is being protected from spambots, you need JavaScript enabled to view it