Budget 2012: 50p tax rate cut, will they or won’t they?


Tony Medcalf, tax partner at Moore and Smalley, outlines his expectations for the Budget.


Once again, there’s been plenty of speculation in the run up to this Budget about the 50p tax rate, with many continuing to lament it for being ineffective as a revenue generator.


However, with the current state of the economy, Government cannot be seen to be helping higher earners when lower earners are struggling with increased living costs so, politically, it will be hard for the Chancellor to argue the case for it to be scrapped immediately.


Vince Cable has revealed that the Lib Dems may be willing to allow the Conservatives to scrap the 50p tax rate unopposed, but only in return for another form of tax on the wealthy, such as the so-called ‘mansion tax’ on homes worth more than £2million, though this now appears unfeasible in the immediate term.


For a while now, the Lib Dems have also been calling for an increase in the personal allowance to help lower earners and I think we’re far more likely to see this being accelerated to £10,000 than we are an immediate cut to the 50p tax rate.


Elsewhere in this Budget, there’s likely to be some further announcements on the Enterprise Investment Scheme and Venture Capital Trusts as indicated in the Autumn Statement, and we’re already expecting the launch of the Seed Enterprise Investment Scheme in April, which will offer huge tax reliefs for individuals investing in start-ups.


We already know that corporation tax is on course to be reduced to 23 per cent in this parliament and there’s been talk that the Chancellor will set out plans in this Budget to reduce it to 20 per cent in later years.


Even with the Government seeing its biggest tax surplus in four years in January, the Chancellor is likely to reinforce the position that the coalition is sticking to ‘plan A’ of reducing the budget by keeping spending under control.


On the whole, I think this will be a Budget of political gestures and talk around the edges about reducing red tape and helping entrepreneurs