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PBR 2007: Pundits’ predictions - The pre-pre-budget report. By Rob Lewis

8th Oct 2007
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In the direct aftermath of the Conservative Party Conference, and in the shadow of downwardly revised growth predictions for the national economy, Gordon Brown’s toy chancellor steps up to the box tomorrow to deliver his first pre-budget report (PBR). Analysts and commentators have been eagerly envisaging just what Darling will deliver: here’s a run-down of what we at Accounting Web feel might prove the more perceptive predictions.

Inheritance Tax
Shadow chancellor George Osborne may have scored political points with his proposed £1 million threshold, but it was something of an open goalmouth. In indomitable Brown fashion, policy on this issue has already been dictated: the Finance Acts 2006 and 2007 committed the government to a gradual increase to £350,000 by 2011.

“Gordon Brown has effectively taken these decisions out of Darling’s hands,” says Nicholas Hughes, director of estate planning and trusts at Chiltern. “If they make concessions now it will look too little, too late. This leaves one card they could play: removal of the main residence from inheritance tax, which would be wildly popular.”

Odds-on favourite: no change
Wildcard prediction: removal of main residence

Green taxes
One of the few ways of openly increasing the tax take and looking good at the same time, it’s not surprising that all the main parties are agreed on using fiscal means to limit carbon emissions. Don’t be surprised by a whole swathe of piecemeal reforms and tax stratagems that could crop up anywhere Mother Earth is threatened. High-emission cars look likely to get lower writing down allowances, while eco-friendly vehicles could see a removal of the benefit in kind charge. Vehicle excise duty might be changed to discourage the use of “dirtier” cars, and the shine could be taken off sponsored employee car ownerships schemes (ECOS) too.

“It is doubtful what effect such measures would actually have on CO2 emissions. But
they would certainly increase the tax take and the complexity of the regime,” says Paula Tallon, director and head of direct taxation at Chiltern.

Friends of the Earth director Tony Juniper has said he would like to see a fuel duty escalator for the transport sector, along with some reform of aviation taxation, but both of these are hot potatoes. Increased grants and exemptions for the installation of renewable technologies, on the other hand, wouldn’t raise any eyebrows whether for private homes or the business world.

Odds-on favourite: everything but the kitchen sink
Wildcard prediction: the kitchen sink

A Treasury consultation earlier in the year on developing brown-field land concluded that if Britain was going to reduce its housing shortage then tax incentives were probably a good idea. It concluded that activities such as land decontamination, the re-use of derelict sites, and dealing with Japanese Knotweed (!) all merit a little encouragement from the taxman, but whether or not Darling will go through with this remains to be seen.

Since the Conservatives have announced plans to raise the threshold to £250,000, stamp duty might be another issue Labour will be focusing on. Apart from simply imitating the competition, one option for the Chancellor is to levy stamp duty at different rates.

"Stamp duty could be levied at a reduced rate of 2% on a first house and then 5% on a second,” says Ian Luder, tax partner at Grant Thornton. The government could offer to help first time buyers while recouping the lost revenue from the higher rate on second properties.

Odds-on favourite: brownfield redevelopment incentives
Wildcard prediction: different rates of stamp duty

Private equity
The British economy’s reliance on private equity has been widely reported since the summer. The Treasury Committee report on private equity, published in July, promised a further review of the relevant rules, the conclusions of which are to be delivered within the PBR. Civil servants are worried the tax system is prejudiced towards debt at the expense of equity (carried interest will be an area of interest here). Darling has already said we can expect a statement on this. However, given the City’s current precariousness, the Chancellor is unlikely to do much.

Odds-on favourite: another consultation
Wildcard prediction: an increase in the period one must hold shares to qualify for taper relief.

Pre-Budget Report 2007: At a glance guide

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