22nd March 2013
Despite the gloomy predictions from the Institute for Fiscal Studies, maybe it would be well to remember that taxes have not gone up substantially yet. The Daily Mail seized on suggestions that VAT could rise to an eye-watering 25 per cent and that austerity could last until 2018 as the influential think-tank gave its Budget assessment.
It is very possible that a Government elected in the next few years finds itself confronted by public finances still in such a fragile state that it will need to raise income tax, VAT or do something radical with National Insurance that effectively puts income tax rates up.
It is pretty unlikely that threshold at which people start paying tax will rise significantly now that the magic £10,000 number has been achieved to the delight of Lib Dems. It has probably cheered quite a few working people on low incomes too. But some taxes have risen already of course.
Many employers with defined benefit schemes will be paying more national insurance, as will employees though in return for a higher state pension. Changing the Inheritance tax threshold has put the bill up for some people though that pays for the long term care reforms and more people will pay higher rate tax. Most of these measures are fiscally neutral, what the Chancellor gave with one hand, he took away with the other. In a few bdugets’ time, it may be more take and less give as George Osborne or his successor needs to increase revenues.
With growth expected to be a paltry 0.6 this year, there is even talk of a further downgrade in the UK’s credit rating. For investors, we suggest you brace yourself for stubbornly high inflation, and keep a close eye on how you have allocated your money whether in savings or in riskier investments. At least markets appear to be looking much further into the future, and on a global basis, people are not so pessimistic. You may also want to consider what a lower value pound means as well though it can of course help you profit from those overseas investments.
Of course, all this gloom, is based on grim predictions for the UK economy. The IFS did consider better scenarios too. The Government is in the midst of authorising a huge intervention into the housing market. What if it kick-starts things? That would make homeowners, at least, feel a lot more prosperous.
Maybe, for the first time in a long time, the growth predictions will prove to be too low and big tax rises or more cuts can be avoided. Well we can always hope.