The Bad News in the Budget
- Slower growth forecast
- Small companies tax rate rise
- National insurance contribution rise
- Petrol tax rise
- Income Shifting
The 2008 Budget to be announced by Chancellor Alistair Darling on March 12 offers little good news, and lots of bad news, for contractors, small business, and the nation as a whole. Watch this space tomorrow after 14:00 for a first look at the most important Budget announcements
Perhaps the most expected announcement will be that the good times are over.
The economic growth forecast for the nation as a whole will almost certainly be revised down to below 2% for the coming year. At the same time, Darling should be concerned with the slowdown in foreign direct investment in the UK. Since 2004, the UK has fallen from the fourth most preferred investment location in the world to the sixth, being overtaken by India and Russia and equalled by Poland, according to Ernst & Young's annual European Attractiveness survey. It said the UK was losing ground on the competitiveness of its corporation tax rate.
Contractor Demand Stable
Despite the economic woes--which many economists expect to bottom out and improve within six months--contractors demand is not expected to suffer as most of us work in areas that aren't subject to budget cuts. The London-based Association of Technology Staffing Companies has still seen no reduction of demand for high-tech contractors, and doesn't predict much of one.
Raising Contractor Taxes in Particular
Taxes will no doubt go up across the board, but taxes for small companies like those of us contractors will go up in particular. The planned tax rise for small companies is for 22 pence. Conservative Shadow Chancellor George Osborne has called for Darling to abandon the planned increase in the small companies tax rate from 20p to 22p, claiming a tax rise now would be a ''disaster.''
The tax rise planned for small companies will be a disaster
George Osborne-Conservative Shadow Chancellor
National Insurance Contribution Rise
We don't yet know how much our national insurance contribution will increase with this budget. It is possible that the increase will only affect high earners--that would include most contractors of course. We can only hope that the National Health Service sees some improvement in consequence, although this hasn't been noted in the past...
Petrol Tax Rise--Postponed?
And, as if petrol prices of 1.06 pounds per litre weren't high enough, Darling had announced plans to raise tax on petrol and probably drive the price over the 1.10 pound barrier. A last-minute leak from Downing Street heralds a postponement of this kind effort until September, but this has not been officially confirmed at this writing.
The UK has fallen as a target for foreign direct investment because of high taxes
Ernst & Young
Income Shifting
As if all this were not enough, the Budget 2008 will probably include the infamous proposal on 'income shifting,' (taxing family businesses for dividing dividend income). There have been rumours, since the wave of protest against this measure has apparently reached Number 10, that the measure will be dropped. Watch this space tomorrow for the first news on the subject direct from the Treasury.
Published: Tuesday, March 11, 2008
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