Hopes and fears for the 2011 Budget

22 March 2011

With Wednesday's Budget in sight, industry experts are speaking up on what they would like to see the Chancellor change - and what they hope he doesn't.

Tax rates

A report from the Adam Smith Institute (ASI) calculates the negative effects of the top tax rate and the organisation has called on the coalition government to scrap the 50p tax rate in this year's Budget.

The ASI says that if the government keeps the 50p rate it will have highly negative effects, leading to lost revenue of £350 billion or more, as well as flat economic growth.

The report points out that the UK has become one of the most highly-taxed countries in the world and evidence from overseas shows that high top tax rates fail to produce public revenues and injure economies.

"The government says the forthcoming Budget will be all about growth, but no amount of tinkering around the edges will make up for the fact that we have an extremely uncompetitive tax regime, which is increasingly making hard-working entrepreneurs wonder why they bother," warned Tom Clougherty, the ASI's executive director.

"Yes, we need to balance the budget - but high taxes are not the way to do it. What we need to do is couple a smaller, more efficient public sector with a dynamic, enterprise economy. Scrapping the uneconomic, politically-motivated 50p tax rate would great start."


Adrian Coles, director-general of the Building Societies Association notes that the government's commitment to ISAs is welcome, but adds: "We believe that the regime could be further improved by permitting transfers from stocks and shares ISAs to the cash product. This would provide more product flexibility for savers and represent a consistency of approach."

Read our round-up of the best ISA rates

VCTs and EIS

Mike Currie, Partner at the Foresight Group says: “Given the belief by the coalition government that private sector businesses will lead the UK out of recession and absorb many of the public sector job losses, it would be incongruous that they introduce uncertainty or downgrade one of the few investment products that are genuinely backing British business at a time that banks are not."

"VCTs are more accessible to ordinary investors as opposed to EISs which are typically for more ‘sophisticated' investors.  The Government's 'we are all in this together' mantra would sound hollow if they favoured a tax break that only the rich can comfortably invest in."

Currie says private equity needs to be protected in order to stimulate investment and enterprise."It is naive to think banks will play any meaningful part in lending over the next year which means private investment is more important than ever. We believe the answer is for British tax payers to back British Business."

Fuel duty

The Federation of Small Businesses (FSB) is calling on the government to reverse the planned 1p rise in fuel duty the Budget next week and is urging it to introduce a fuel duty stabiliser - a mechanism to adjust fuel prices in order to alleviate the impact of oil price rise shocks on pump prices - as promised.

It says rises in fuel duty are stifling eight in 10 small firms, but is concerned that it severely affecting key sectors needed for economic growth. Interim results from more than 1,000 respondents to the FSB 'Voice of Small Business' survey panel show that rises in fuel duty will negatively impact 79% of small businesses.

The FSB is particularly concerned that the manufacturing industry, the construction sector, and the transport industry are being severely affected.

The FSB believes that while a cut in VAT would lower the price at the pump, it will not stem the volatility in fuel prices in these uncertain times - something a fuel duty stabiliser would.

"Reversing the planned 1p rise - which when indexed to inflation will actually mean a 5p increase on pump price - and cutting the VAT on fuel duty in the Budget next week will be welcome steps," said FSB national chairman John Walker.

Meanwhile, almost 60% of country people in a survey by insurer NFU Mutual said tackling the cost of fuel was top of their wish list for the Budget. "Many people struggling with the cost of fuel are in rural areas where heating oil has risen in value and is an all too common target for thieves," said the company.

"We're glad the government is making moves to help those who struggle to heat their homes, but any moves to tackle fuel poverty should also include those who find it difficult to make ends meet because of rising petrol prices.

"We would welcome any way of reducing the tax burden on people and businesses in remote rural areas and we anticipate measures that will help small and medium size businesses."

Support for struggling homeowners and Stamp Duty

The Building Society Association is calling for Support for Mortgage Interest (SMI) to be paid at the same rate as the borrower's mortgage to ensure that vulnerable borrowers continue to receive adequate support.

"Obtaining a mortgage remains very challenging for first-time buyers, who must raise a large deposit," said the BSA's Adrian Coles. "Transaction costs act as a further barrier to house purchase, so we call on the government to make permanent the exemption from stamp duty for first-time buyers on properties under £250,000.

"The government should also go a step further and look at reforming the current 'slab' structure of the tax - it's time stamp duty for all buyers was reviewed."   

This article was written for Interactive Investor

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