What are you up to Mr Darling?

The Budget which is to be announced on 22 April may give us a clearer indication of how the Treasury and Mr Darling are planning on dealing with the current economic uncertainties, or even if they have a plan at all.

As we are all aware, the level of public sector borrowing has increased beyond all expectation in the last few months with government money being pumped into the banking sector and the increased demands on the welfare state with the rise in levels of unemployment. Some estimates suggest it could take 20 years to bring the borrowing back down to ‘normal’ levels.

The question is – will the Chancellor try to get the economy moving by pumping money into large infrastructure projects, road widening and new rail links as suggested? Or will they continue to fund the banks with the hope that the money is lent on? However, with little money left, how would he afford to do either?

My guess is therefore that he will target those deemed as being ‘able to afford’ to pay extra tax. There have already been announcements that those earning in excess of £100,000 and £150,000 will be subject to a higher marginal rate of tax. In addition, the prospect of income splitting will again be raised and there will no doubt be further anti avoidance to combat some of the more esoteric tax structures that are being marketed. These, and no doubt other ideas, will raise a certain amount of money for the Treasury but not enough to balance the UK’s books.

The real problem, however, is the lack of lending from the banks. Without that lending, good profitable business may not be able to expand and create the wealth and jobs that are required. The Treasury has already put astronomical sums into the banking system with little or no effect. The next step may be for the Bank of England to be ‘encouraged‘ to start buying up debt from the banks which would improve their liquidity ratios and allow them to start funding businesses again.

The Budget will provide a lot of words and some tinkering to the tax system, but a map to get the UK out of the Doldrums? We will have to wait and see.

For further information on tax issues, call Ian Smethurst on 01204 55 1100 or email ismethurst@clbcoopers.co.uk