Budget 2012: Will there be any surprises?

8 March 2012

Income tax, inheritance tax and VAT

Who wants what: The Confederation of British Industry (CBI) has called for tax cuts which it said will provide a £500 million boost to business. The shadow chancellor Ed Balls also wants tax cuts in the Budget, suggesting a cut to VAT and a 3p income tax cut for a year. The 50p tax band is also hugely unpopular.

What we should expect: Gradual increases in income tax personal allowances are planned, with the aim of making the income tax breathing space £10,000 by April 2015. The tax-free allowance is expected to rise to £8,105 this April.

Changes to the 50p band are unlikely, although Osborne told the EEF Manufacturers' dinner on 6 March that any tax cuts would have to be paid for elsewhere. No changes are expected on VAT or inheritance tax though.

Rumours: These range from expectations of a fast track to the full £10,000 to little this year but a higher-than-expected rise next year.

Boost to business

Who wants what: Small and medium-sized businesses still say that lending is still sluggish. John Walker of the Federation of Small Businesses recently warned the Chancellor: "...firms have yet to benefit from credit easing, still find themselves locked out of public procurement contracts and risk being unable to access the Green Deal when it is introduced in the autumn."

What we should expect: Plans for a "credit easing" scheme to improve lending were mentioned in the Autumn Statement but no details have emerged.

Rumours: We will get the full information about the credit easing plans on 21 March. There is also the possibility of a big anti-avoidance crackdown, too.

Fuel duty

Who wants what: Motoring groups and businesses say the cost of fuel is hurting the economy as it has seen a 25-30% hike in the last two years alone. Prices at the pumps reached record highs in February.

What we should expect: There is little to no chance of any cuts to fuel duty. The 3p-per-litre increase - delayed until August 2012 in the Autumn Statement - will go ahead.


Who wants what: Danny Alexander, chief secretary to the Treasury, said in an interview with The Daily Telegraph that he would like to reduce all tax relief on pensions to 20%.

What we should expect: The axe could fall on higher-rate tax on pension contributions to help pay for lifting people earning less than £10,000 out of tax. At present a 40% or 50% rate taxpayer can claim tax relief on their pension contributions at their highest marginal rate.

So £10,000 placed into a pension costs a 40% rate taxpayer £6,000. At retirement, withdrawals from a pension are then taxed at the individual's tax rate.


Who wants what: Vince Cable is a fan, for what that is worth. The general feeling is that while it's fine to make foreign nationals play catch-up, the impact the property market and on UK homeowners (who have already paid tax on the money they earned to buy the house) would be unwelcome.

What we should expect: No extension to the stamp duty holiday. Plus, a 1% "mansion tax" for around 50,000 homes worth more than £2 million. This is aimed at foreign nationals who do not pay stamp duty but own UK property and have benefitted from price rises but will catch many other people out.

"From the government's point of view, homeowners are much like motorists - an easy target," commented Tracy Kellett, director of the property search agency BDI Home Finders.

"Calling it a 'mansion tax' is a clever political wheeze. What MP would vote against something with such a loaded name? My big worry is for older workers who have been careful over the years, paid off their mortgage and seen their properties rise in value over time. Some people are born with mansions, others - the vast majority in fact - have had mansions thrust upon them."


Who wants what: A petition from 91 organisations has urged Osborne to make this a rise of 5% above inflation - or around 2p per cigarette. The smokers' lobby continues to provide fierce opposition.

What we should expect: Duty will rise by 2% above inflation.

Child benefit

Who wants what: The plans are being opposed by the Labour Party, which describes them as "really really unfair". Confirming the plans, Nick Clegg acknowledged it was an anomaly that a family with a single earner taking home more than £42,475 would lose child benefit but a couple each earning slightly less than the top rate could together take home £80,000 and keep the benefit.

What we should expect: Households with someone earning more than £42,475 will lose child benefit in January 2013.

Rumours: That the cut-off point may be raised to £50,000 or that the whole thing may be parked or reviewed.

This feature was written for our sister website Interactive Investor

Add new comment