What is Gordon Brown likely to have in store for us in tomorrow's Budget? Jane Hall takes a look, and one Journal reader reveals her Budget wish-list.
 Gordon Brown will tomorrow deliver his tenth Budget. The Chancellor - widely tipped to take residence at No 10 when Tony Blair steps down - will finally open his red box of tricks at 12.30pm and, over the course of 40 minutes, reveal to the nation his latest economic forecasts. It could make for uneasy listening. His pre-Budget report in December warned that Britain was facing a tough year ahead - with his previous growth forecast slashed from 3.5% to just 1.75%. Tax rises could be on the cards - although a last-minute rush of corporation and income tax payments have brought a big windfall for the Treasury. And Stephen Herring, tax partner at BDO Stoy Hayward says: "When considering the impact of the 2005 pre-Budget Report measures, it is now clear the Chancellor doesn't intend that the 2006 Budget will be the principal tax-raising Budget of this Parliament. "Every Parliament has one, typically only one, budget which provides the Exchequer with sufficient increased tax revenues to cover the inevitable shocks which come about from unforeseen spending needs or tax shortfalls. Sometimes even moderate recessions can lead to both. "I have a nasty feeling that the Chancellor may have pencilled in a significant hike in the VAT and National Insurance rates for the 2007 Budget. He has little left in the kitty and spending is rising and planned tax receipts may easily fall short of what he needs." Brown has, however, already vowed to help pensioners and first-time buyers, so there should be something to cheer about in that quarter. And he is widely expected to unveil a multi-million pound boost for working women, following the recent release of Government-backed research which uncovered a huge "gender pay gap". The Chancellor is said to be determined to use tomorrow's Budget to take urgent action to deal with what he sees as an injustice in the workplace. Although Britain appears to have managed a housing price slowdown without a serious slump, other items in the Chancellor's in-tray may well include the high level of consumer debt - it is now running at £1.2 trillion, forcing record numbers of borrowers into bankruptcy and driving up home repossessions; the globalised challenge from China and India; and funding for the 2012 Olympics. But what do the financial experts think Brown will have up his sleeve? The Journal asked Ian Luder of Grant Thornton to look into the future. General principles: "As this could well be his last Budget, the Chancellor will look to deliver one which he feels confident will help him as a possible new Prime Minister. "However, he's introduced policies, such as tax credits, which failed to deliver and Brown must make sure he does not create a rod for his own back. "The first Budget of a new Parliamentary term has traditionally been a time to announce unpopular measures. Will Brown buck the trend?" National Insurance: "Those with good memories will remember that in the first Budget after the last General Election, the Chancellor increased National Insurance by 1p. "But it seems unlikely he'll risk the health of the economy by increasing NI contributions this Budget." Personal Allowances: "We expect the Chancellor to follow form and rely on fiscal drag to boost tax revenues. We expect tax bands only to rise with inflation." Penalties: "HM Revenue & Customs (HMRC) has been set a target of 93% of all self-assessment forms to be received on time, yet a million of the simpler forms have been taken out of the system, making this an even tougher target to meet. "These high targets will increase the pressure on HMRC and, coupled with a recent National Audit Office report into self-assessment, there is a growing trend that fines will be levied more aggressively. "Currently, those who file late do not have to pay a fine if they subsequently have no tax to pay. "The Chancellor could decide that everyone who files their tax form after the January 31 deadline will be fined, even if they have no tax to pay. "We predict the Chancellor to enforce a tougher regime." Pensions: "After the U-turn on residential property and Self Invested Personal Pensions (Sipps) at the time of the Pre-Budget Report in December, the Chancellor can ill afford to throw another spanner in the works a fortnight before A-Day (the start of the new pensions regime). "We predict the Chancellor may relent and more finely target the restrictions to residential property from which a fund beneficiary benefits, rather than residential property as an asset class per se." Recycling of tax-free lump sums: "The Chancellor will proceed with pre-announced plans to introduce rules to prohibit the potential for recycling tax-free cash, by returning the tax-free lump sum to the pension scheme, and we expect him to include loan arrangements. "The fiendishly complex rules could force anyone who takes income out of their pension, and then makes any payments into their scheme, to keep years and years of records tracking the ebb and flow of the entire wealth. "A-Day, dubbed pensions simplification, has now utterly failed to live up to its name. The ever- growing legislation is a complete mess - one that will make the new regime entirely unhelpful in practice and prone to inconsistency." Inheritance Tax (IHT): Last December the Chancellor announced in his Pre-Budget Report that the IHT threshold would rise in this Budget only by 3.36% to £285,000. IHT has become a major issue as more middle and lower-income families are caught by a tax once aimed only at the rich. Making matters worse is the impending arrival of the new pensions regime on April 6. "It beggars belief that we are only days away from the new age of pensions and that the issue of IHT and pensions has not been resolved. "How are people expected to do their IHT planning?" says Ian Luder. Proposals from Grant Thornton that could remove the need to charge IHT on any pension benefit include: * Upon death pre-State retirement age - no tax due on any lump sum payment other than the lifetime allowance charge applicable for sums over the lifetime allowance. * Upon death over State retirement age but under 75 - tax applied at a fixed rate of 20% of the un-crystallised funds in existence at death, payable out of the fund. * For those aged between 65-70 - an exemption from IHT if their spouse were aged below 60 or they could produce evidence of earned income equal to twice the level of annuity that could be bought. * For those who died over age 75 - fixed charge of 20% applied to any fund transferred to another scheme member. VCTs "Hidden away in the December Pre-Budget was the fact that the decision concerning the continuing rate of income tax relief for Venture Capital Trusts (VCTs) and Enterprise Investment Scheme (EIS) investments, will not be announced until the Budget 2006. "A temporary doubling of the rates was announced in the Budget 2004 (from 20% to 40%). Investors have been left in limbo with only a promise to clarify the position in this Budget. "The current relief scheme has been an unqualified success with the number of VCT sales increasing almost seven-fold in the last year, at a relative low cost for the Chancellor. "Although this boost for enterprise needs to remain in place, I expect the Chancellor to revert to 20%." At a glance * Tax personal allowances - insufficient increases to thresholds. * National Insurance - no increases likely. * Self Assessment - tougher penalties for those filing late. * Pensions - pre-announced plans to prohibit the recycling of tax-free lump sums. * IHT - clarification urgently needed ahead of pensions A-Day, April 6. Page 2: 'I'd hate to see petrol prices rise' | 
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