Budget 2013: Rabbits out of red box thing of past, predicts Ernst & Young

CHANCELLOR George Osborne is facing one of his most difficult balancing acts when he delivers today’s Budget, an Ernst & Young expert has said.

Tim West, tax partner at Ernst & Young in Leeds, said that with the loss of the UK’s AAA status, the ongoing prospect of a triple dip recession, and rising public and political scrutiny over what constitutes fair taxation, the Chancellor faces a challenge of stimulating growth without adding to the burden on Treasury coffers or risk damaging the UK’s attractiveness as a place to do business.

Mr West said the Budget should be one of few surprises.

“Rabbits out of the hat, or more accurately the red box, should be a thing of the past,” he said. “Much of the Finance Bill has already been published and consulted upon, although we are waiting to see whether any ‘tweaks’ or additional details are released on Budget day in relation to the General Anti Abuse Rule (GAAR) and other pre-announced policies such as the R&D tax credit.

“The recent focus on fair taxation has reinforced the need for the Chancellor to demonstrate that his existing policies for tackling tax avoidance are starting to have an impact. He will be doing this against a backdrop of an international debate around how countries tax cross border trade.”

Mr West said the Chancellor may follow his predecessors and seek further changes to the tax system to incentivise small businesses and entrepreneurs.

This could include measures to add a National Insurance Contribution exemption to his proposals for owner-employee share schemes, or consider extending these reliefs to other forms of incentives for small businesses.

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There is also growing political pressure to raise the personal allowance beyond £10,000, up to the level of an individual in full time employment receiving the minimum wage.

“Changes to the personal allowance may make it difficult for the Chancellor to balance the books as it is particularly costly. While it’s unlikely to be announced with immediate effect, he could signal his intention to increase these measures in the future,” said Mr West.

And further tax rises cannot be ruled out as revenues continue to be need to be raised, said Mr West, before warning that an additional VAT hike would be “very unpopular”.

He said: “Speculation around whether the Government will potentially abolish its plans for a 45p minimum price per unit of alcohol may herald an increase in duty. The Chancellor may look to this and other duties, to help swell his dwindling coffers.

“Wealth taxes are also a perennial possibility. But applying taxes to a relatively small population would require a high tax rate in order to generate any meaningful revenues, which could risk undermining the UK’s competitiveness.”