Pre-budget predictions include hope for small and large firms

A CUT in VAT, a boost for ISA savers, and cash flow assistance for small firms could be on the cards in next week’s pre-budget report, according to PricewaterhouseCoopers (PWC).

The accounting firm is predicting a raft of proposals ahead of the much anticipated announcement by Chancellor Alistair Darling next Monday.

It has put together a top 10 list of predictions including a cut in VAT, which it says is more likely to be a modest 1% rather than 2.5% as speculated by other analysts.

Such a move would cost £12bn, but would leave £15bn in the Chancellor’s back pocket. However, PWC said that although a “big bang” approach would benefit Christmas shoppers, particularly those with electronic and computer products on their wish lists, it would partly leak out of the UK hence a smaller cut.

The firm also believes that the temporary increase in personal tax allowance announced earlier this year could be made permanent and that the national insurance contribution threshold (currently ay £5,435) will be aligned. 

It added that the Chancellor also needs to say whether the alignment of the start point of the 40% income tax rate and the NIC upper earnings threshold will go ahead in April 2009 at £43,000 as planned – or whether it will be at a lower figure given his changes to the 40% start point in May.

Extra for targeted tax credits, and an increase in the annual ISA limit (currently £7,200 of which £3,600 can be in a cash ISA) perhaps to as much as £10,000 are also included in the predictions.

There could also be good news for SMEs with a speeding up of loss relief when losses are being made and a longer period for losses to be carried back at a time when tax bills for last year’s good profits are being posted.

PWC also predicts that the Chancellor could cancel the 1% increase in small companies’ rate of corporation tax, which is due to rise to 22% in April.

Larger businesses will also be crossing their corporate fingers in the hope that a clearly articulated strategy for the taxation of foreign profits is at last announced.

As a minimum, business will be hoping for a commitment to introduce some form of exemption for such profits when already taxed abroad to keep its faith in the prospect of an improved UK system.

PWC said of its predictions: “At the risk of being a party pooper, the Chancellor can’t just be in Father Christmas mode for the PBR. Necessary short-term giveaways must be tempered with realism about medium and longer term tax strategy.

“If the Chancellor is going to cut taxes he has a lot of choice. There is talk of him having £15bn in his purse for a fiscal stimulus: he’s likely to spend this on a range of goodies, particularly ones targeted at the less well off, than blowing it all on one big measure.

“The Chancellor must also spare some thought for companies if the UK is to remain an attractive place to do business, so we would hope to hear more about how UK fiscal policy is going to help make doing business easier in these uncertain economic times.”

Leeds, York & North Yorkshire Chamber of Commerce chief executive, Gary Williamson said: “With the current, unstable, economic climate there are a number of fiscal measures that would be welcome by businesses around Yorkshire.

“We would urge the Government to use the pre budget report to reduce the burdens faced by local businesses by incorporating measures including the reintroduction of empty property tax relief and reduced local tax burden.”