Budget prediction

With an election looming, the Chancellor seems certain to postpone the tax rises that many economists say are inevitable. Instead, a second Budget is likely after the election, whichever party wins – and this is when painful tax rises are expected. But some changes to the big revenue-raisers such as income tax are possible, experts say. We look at some measures the Chancellor could announce.

INCOME TAX
The basic and higher rates of income tax are unlikely to change in the Budget, experts believe, the Chancellor might be tempted to augment the 50pc income tax rate for high earners with a 'super tax' of, say, 60pc on income over £1m. Mr Darling could also be tempted to reduce the tax threshold for the new 50pc rate of tax from £150,000 to £130,000.


NATIONAL INSURANCE
No change is expected in National Insurance, given that all three rates – employers', employees' and the rate for high earners – were raised in the pre-Budget report, experts say. The increases take effect in April next year.

VAT
Analysts think VAT is unlikely to rise in this Budget – but is almost certain to be increased later in the year. Its scope could also be extended to items now zero-rated.

CAPITAL GAINS TAX
This is one tax that seems certain to rise, experts said. "With the 50pc rate of income tax due to take effect from April 6, many expect the current rate of CGT – just 18pc – to rise to counter tax avoidance by switching investments to generate capital gains instead of income," said Matt Coward, director of private client tax at PKF. "A CGT rate as high as 25pc or 40pc could be announced."

INHERITANCE TAX
Although the Chancellor has frozen the IHT nil-rate band for the next tax year at £325,000, he may make other changes to squeeze more revenue out of death duties. "Tightening the rules on gifts could bring more funds into the IHT net and higher rates of tax on larger estates, perhaps a 50pc rate on estates of over £5m, could raise significant amounts," Mr Coward said.

CAR TAXES
The Chancellor is thought unlikely to announce any new taxes given that duty on petrol is due to go up every April until 2013, by 1p a litre, plus inflation. He will probably announce the final amount of this year's rise, which could be about 2p a litre.