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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Pre-Election Spin Budget Without an Election, Inheritance Tax Allowance Up to 600k?

ElectionOracle / UK General Election Oct 09, 2007 - 11:29 AM GMT

By: Nadeem_Walayat

ElectionOracle Gordon Browns Darling delivered his first Pre-Budget Report which had some hallmarks of a pre-election budget, unfortunately Gordon bottled out of the election during the weekend on the back of bad opinion polls. This could however now lay the groundwork for a possible Summer 2008 Election as headlines flash £600k Inheritance Tax Allowance.


Key Highlights and Quick Analysis of the Pre-budget Report:

Tax Cuts

  • Inheritance Tax Allowance rises to £600,000 effective immediately - Though this is not quite what it appears on face value, i.e. the £600k threshold is as a result of partners transferring their £300k allowance to the other partner.
  • Main Corporation Tax confirmed to be cut to 28% from April 08 - Nothing for small companies.
  • Child Tax Credit will rise by £175 next year - Current rate is £545, therefore £175 suggests a 32% increase !

Tax Rises

  • Air flights to be taxed rather than passengers
  • Capital Gains Flat rate 18% tax from April 08 - A significant tax rise for the wealthy - Expect market activity in advance of April 08.
  • Small Companies Income Splitting between Spouses to be targeted.
  • Private Equity loopholes to be closed.
  • Non Domiciles - £30k annual charge and no tax free allowance

Spending

  • NHS Spending to rise to £110 billion by 2010 (from £90 billion, though actual current NHS spending is far higher)
  • NHS spending to rise by 4% above inflation - More money tipped into an unproductive black hole
  • Transport - Earlier announcements confirmed of £14.5bn investment by 2010.
  • Defra £4bn extra to combat climate, in addition to £800m specifically for flood defenses.

Economy

  • Economy to grow by 3% this year and 2.5% next year - Overly optimistic, Market Oracle forecast is for growth of 1.5%
  • Inflation forecast to keep to 2% for next 2 years
  • Housing - Wants introduction of 10 year Fixed Rate Mortgages - Fixed rate mortgages already exist, what's new ?
  • Housing - £4bn to renovate homes over 3 years.
  • Government Borrowing Estimated at £38bn - The budget was supposed to balance during an economic cycle - Bad news for sterling.

Conclusion - This at first site looked like a tax cutting budget for grabbing the headlines. But on quick analysis suggests that ordinary people will be no better off, and failure to cut tax on small companies. The budget favour's the unproductive public sector and large Corporations.

Note the above is a quick analysis and is subject to later corrections / amendments.

By Nadeem Walayat
(c) 2005-07 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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