As this is the first pre-budget report delivered by the new Chancellor,Alistair Darling, it has been speculated that rather than outlining plans for the next three years, this one could end up laying out plans for the next decade.
It has been predicted that the Chancellor will both address issues of IHT in the wake of the Tories’ promises when he delivers his speech at 3.30pm today, and possibly downgrade expectations for UK economic growth in light of global credit conditions.
A spokesperson from AEGON said: “If the government does want to make further changes, possibilities include a big increase in the nil rate band for IHT from its current £300,000, but leaving the home within the tax net, a reduction in the nil rate band, coupled with taking the home outside the IHT net or indeed a change to the period for which IHT can apply to gifts - from the current 7 years to say 10 years.”
As this has now swung from being a ‘pre-election’ budget statement back to the standard foreshadowing of the annual Budget, it could indeed prove to be a less controversial, headline grabbing affair.
However it is likely that Darling will want to use the opportunity to mitigate against the backlash currently directed at the Prime Minister Gordon Brown – possibly by signalling that the Labour government has its own ideas about tax reform.
Francesca Lagerberg, head of Grant Thornton's National Tax Office, believes the Chancellor faces "extreme difficulty" in manipulating an already tight fiscal policy set for him by his predecessor: "Darling has a chance to step out from the shadow of Brown and offer a different approach that brings certainty and if possible simplicity. Despite recent headline announcements such as dropping the main rate of corporation tax by 2 per cent and changes to income tax rates, the ex-Chancellor did not provide stability for small businesses nor gain the full confidence of individuals. The new Chancellor should take the opportunity to operate with more transparency and take control of the UK's messy tax system."
Darling is also predicted to outline plans for smaller increases to NHS spending than there have been in previous years. Since 2002 the NHS has been given record annual funding increases of about 7 per cent, however speculation abounds that this will slow to between 3 per cent and 3.5 per cent by 2011/12.
Ultimately, Lagerberg believes that there will be less room for manoevre than in recent years after Gordon Brown flexed his muscle for the top job in this year's Budget without a thought for how it could affect Darling's progress in his PBR.
