Pre-Budget Report 2009 - Overview

"The commentaries below are written in general terms. Details can also be found in our downloadable Pre-Budget Report brochure. You are strongly recommended to seek specific advice before taking any action based on the information given, both in the commentaries and in the publication."

Unusually there was little tax content in the Chancellor’s speech, but the Pre-Budget Report (PBR) itself comprised 212 pages of detail. In addition, there were 35 Pre-Budget Notes issued by HMRC to wade through.

The backdrop to this year’s PBR was particularly intriguing.  It was obvious that at some point the Government would need to raise more tax to start repaying the exceptional borrowings resulting from the economic crisis.  In this connection we were already on notice that a new 50% top rate of income tax would apply to taxable income exceeding £150,000 pa from 6 April 2010, and personal allowances would be withdrawn from individuals whose taxable income exceeded £100,000 pa.  But those increases alone were clearly not going to bridge the gap. So the question was how the difference was to be tackled – more tax increases, less spending or both. 

And of course this question has a political as well as an economic dimension as we move towards the next election.  In more normal times the Chancellor of the Exchequer would surely want to reduce the headline taxes just before an election and he certainly would prefer not to announce tax increases.

In the end, the Chancellor decided not to go for large tax rises for 2010/11, but warned that National Insurance contributions would rise by 1% across the board with effect from 6 April 2011. However there may be a Government of a different hue in power in 2011. So it remains to be seen whether this warning actually comes to fruition.

The press had been full of dire predictions for a windfall tax on bankers’ bonuses with bankers lining up to take the Government to the European Court over a potential breach of their human rights. In the event, we ended up with a targeted levy on the banks’ bonus pools between now and 5 April 2010 and it will be interesting to see how effective this is.

The Financial Secretary of the Treasury, Mr Stephen Timms, had warned that the Government’s patience with contrived tax avoidance was wearing very thin and that we should expect to see yet more anti-avoidance legislation in the PBR. We were not disappointed. We have a raft of new targeted rules covering a wide range of schemes designed to avoid various taxes and yet more threats for those who have offshore bank accounts that have not been disclosed. This is all part of a concerted attack on avoidance and evasion by the UK authorities and other leading economies  which will undoubtedly continue to be a mainstream activity for HMRC irrespective of the possible change in Government in 2011.