The second budget of the year will be more significant than the first.  It will be the first (C)onservative budget for many years but it is likely to be far from (c)onservative.  It may well include a liberal number of tax increases.  Look out for the ‘We knew things were bad, but we didn’t think they were this bad’.  Now is the best time to be severe, when everyone is expecting it.  The only thing holding them back is the danger of stopping any perceived recovery in the economy.

Our predictions:

VAT:

The main rate will increase to 20% with the introduction of a higher rate on certain high-end luxuries.

Income tax:

Basic rate to remain at 20%

Higher rate of 50% to apply to income over £120,000

Personal allowance (up to age 65) will increase more than usual to something like £7,500 (from £6,475) with a promise to increase it to £10,000 by 2013.  The higher allowances for older age groups will rise with inflation.

National Insurance:

The proposed increase of 1% in employees’ contributions will stay but the employers’ extra 1% will be cancelled.

Corporation tax.

Small companies rate will increase by 1%.  This would not be dissimilar to asking employees to pay the extra 1% NI.  Both represent a tax on income.

Capital gains tax.

Capital gains will be taxed at the marginal rate of income tax.  Any gain will be treated as though it is income.

The annual exemption will remain, but frozen so that it will not rise in the future (and become, eventually, comparatively worthless).

There will be some concession to employee share schemes, SAYE schemes as well as to entrepreneurs.

Inheritance tax:

Unlikely to be any serious changes.

Tax avoidance:

The war against tax avoidance will continue.  If it is properly targeted very few would disagree but rules that create uncertainty, such as the IR35 regulations simply complicate and confuse an already complicated tax system.  We can only hope they target the real avoiders – schemes that pretend income is something else – and people who suggest they don’t ‘belong’ here (non-domiciled).

Middle and upper income earners will be expected to contribute to reducing the national debt, benefits will be targeted on the basis of deserved need and there will be help for the lower paid and pensioners.

What does a Lib-Con compromise have in store?  A bit of honesty is called for, less con.

‘Democracy is a very bad form of government – but it’s the best we have’  someone said.  So how do you make democracy fair and make it work, all at the same time?  A hung parliament is not good because forming a government depends on compromise.  It doesn’t seem entirely fair when ‘first past the post’ creates a situation where one party gets 25% of the total vote and 50 MPs compared with another party that receives 28% of the vote and has 200 MPs.   This could be corrected by proportional representation but, on the face of it, this would inevitably result in a hung parliament more times than not.  How would that solve any problems.  It also has to be acknowledged that very small minority parties would be entitled to representatives in parliament.

Not a bad thing to have diverse opinions represented – but not if minorities can control, and possibly dictate, what decisions are made.  To have strong government, with the power to carry out an agenda (for which they were elected) the governing party needs a majority in its own right.  But who then challenges excesses of power, except the members of that party (who are normally expected to do as they are told)?  Idealists would perhaps think that it would be better to have decisions based on strong argument, rather than strengh of numbers; that compromise might create the best result – until you consider that a donkey may well represent a horse designed by a committee.