Overall Reactions to Pre-Budget Report 2008

The key question will be whether the Chancellor has secured full value from his £20billion fiscal stimulus. To achieve this, it must be possible for both individual tax payers and businesses, small and large, to readily identify what they will get from today’s PBR.

So far as the individual tax payer is concerned, most tax payers will need to place a value on the temporary VAT reduction from 17.5 per cent to 15 per cent as they will find little else to help them. There were no substantial increases in personal allowances or a cut in the basic rate of tax which many will have hoped for. In a week following major special discount days by retailers such as Marks & Spencer and Debenhams, a 2.5 per cent VAT reduction will be swamped by memories of 20 per cent promotions and they will see little extra in their monthly pay packets. The continuation and marginal improvement of the increased personal allowance to compensate basic rate tax payers for the loss of the lower tax band from 6th April 2008 is no more than the minimum which would have been assumed by basic rate tax payers.

Stephen Herring, Senior tax partner at BDO said: “The Chancellor should have used a good part of the £20billion available for direct cuts in income tax which tax payers – and consumers – would have noticed every month in their pay packets. Will they really link the price paid to good and services to the VAT reduction?”

He continued: “It is disappointing that the cross party consensus is the 40 per cent top rate of tax is now history. I really do question whether the additional higher rate tax raised by increasing the top rate to 45 per cent in 2011/12, which may amount to less than £2billion to the Exchequer is worth the inevitable erosion of the UK as providing a tax friendly environment for entrepreneurs and business leaders who often create employment opportunities for their employees.”

Stephen concluded: “Most of the PBR measures were expected and therefore lack sufficient impact. The Chancellor should have been bolder on the business taxation and income tax fronts even if this meant he had less in the kitty for his temporary VAT reduction.”