All eyes on Darling as Budget looms

TRAINING for every young person who has been out of work for more than a year is expected to be a key part of this afternoon’s Budget.

According to reports, Chancellor Alistair Darling will use his second Budget to reveal swingeing Civil Service cutbacks as part of a plan to save £5bn a year.

Amid soaring unemployment, Mr Darling is expected to announce a £1bn support package for the jobless, including a work or training scheme for the under 25s.

TheBusinessDesk.com will be providing up-to-the-minute coverage of today’s Budget in association with Horwath Clark Whitehill.
We will send a Breaking News Email within minutes of the end of the Chancellor’s speech and then providing full coverage, comment and reaction to the Budget this afternoon.

Tom Elliott, partner at Horwath Clark Whitehill in Manchester, believes with a General Election looming, Mr Darling faces a tough challenge

“While the full array of options open to him, both in the lowering of public spending and the raising of additional tax revenues, include a number of unpopular choices, he may have to temper his instincts in order to ensure that the Government does not become too unpopular in the run up to the next General Election.”

Mr Elliott is hoping for a package of support for enterprising small and medium-sized companies, as well as help for larger organisations and sectors, such as automotive, which have been severely hit by the economic downturn.

He said: “In order to encourage private sector investment in high-tech and green companies, we expect to hear the Chancellor announce targeted extensions to both the Enterprise Investment Scheme and Venture Capital Trusts regimes.

“This could be coupled with the initiative announced on Monday by Lord Mandelson to provide £1bn of public funding for high-tech business start-ups in the electronics, renewables and biotechnology sectors.

Mr Elliott, pictured, would also like to see a further postponement of the planned increase in the rate of tax for small companies, which is set to rise from April 2010 from 21% to 22%.

“Further provisions were introduced in the pre-Budget report to temporarily allow companies and businesses to carry a further £50,000 of losses back beyond the existing one year carry back.  We are hopeful that this measure will be extended beyond the current deadline of November 2009.

“A planned 0.5% increase in both employer’s and employee’s National Insurance Contributions from 6 April 2011 is expected to remain unchanged, as any attempts to bring these increases forward would prove unpopular given the timings in relation to the next General Election.”

With many suppliers being hit by the withdrawal of credit insurance, Mr Elliott is expecting the Chancellor to announce plans for a temporary scheme to
fund £5bn of state guarantees for credit insurance to address this problem.

HCW is expecting to see some help given to savers, with an increase in the ISA allowance from £7,200 to £10,000.

Moves to remove higher rate (40%) tax relief on pension contributions, are unlikely, Tom Elliott says: “This will only exacerbate the problem of under funding of pensions which in turn is likely to place a greater burden on state finances in the future.”

Most controversially, Mr Elliott  believes the Chancellor, who needs to raise taxes to reduce public borrowing, may announce that the VAT rate – which he cut to 15% to boost consumer demand in the tun-up to last Christmas – may be increased to 18.5% from April 2011.

He said: “The current 15% standard VAT rate is scheduled to revert back to 17.5% on 1 January 2010. In the knowledge that the UK has one of the lowest rates of VAT in Europe, it is expected that the Chancellor will announce a rise in the rate to 18.5% from April 2011 which would generate an additional £5bn of much needed revenue for the Exchequer in 2011/2012.”

Other key areas which Horwath Clark Whitehill expects to see some action are:
:: Extending the The Stamp Duty Land Tax exemption on residential property purchases up to £175,000 to the end of this year. HCW is also expecting significant proposals to assist house building projects that have stalled and for those home-owners suffering mortgage arrears and facing repossession.

:: Automotive sector – A much needed stimulus for this sector may come in the form of cash incentives for old, less environmentally friendly cars to be taken off the road and replaced by new, more fuel efficient cars.    A longer term commitment to supporting development of electric/hybrid cars is likely and it is speculated that this will be provided through Government-funded discounts for these vehicles.

:: Anti-avoidance: The firm expects the announcement of a further Offshore Disclosure Facility to allow errant tax-payers to come clean in advance of an anticipated HM Revenue & Customs clamp-down. The action by the tax authorities may include the publication of a “Name & Shame” black list in addition to high-profile prosecutions.