Taxes Will Fund the War, Says Baker Tilly.

Feature Editors

LONDON--(BUSINESS WIRE)--Oct. 24, 2001

According to tax partner George Bull at leading accountancy firm Baker Tilly, the Chancellor will aim to fund the war in Afghanistan via a series of heavy-hitting tax hikes in the new year.

`It's impossible to imagine what the war in Afghanistan, and what the war on terrorism, will cost the UK over the next decade,' says Bull. `However, we do know that the Chancellor has made extravagant spending pledges for the NHS, education and transport which he will not be able to meet, while the rural economy is in tatters following the foot-and-mouth debacle. The easy option? Broad-based tax hikes.

`If the Chancellor needs easy money, the quickest and simplest route is to freeze personal allowances and tax bands, effectively raising taxes faster than the rate of inflation, making inflationary pay rises negligible for millions of workers,' says Bull. `This is particularly attractive to the Chancellor because taxes collected from employees via the PAYE system whiz directly into the Treasury's coffers. We can also expect to see Stamp Duty increases next year, which means increased costs for those buying new homes, thus adding further uncertainty to the already-volatile housing market. In fact, the Treasury is already rumoured to have binned (pound)400m Stamp Duty savings which were originally earmarked for urban regeneration projects.'

The self-employed shouldn't expect to escape the Chancellor's scythe. `Moving the self-employed in to the Class 1 NIC net would bring the Chancellor tremendous financial rewards,' explains Bull. `For example, a self-employed person currently earning (pound)30,000 a year has a (pound)1,900 National Insurance bill. If the Chancellor's plans go through, this could rocket to as much as (pound)5,500 annually.'

Finally, Bull expects the Chancellor to defer taper relief enhancements originally proposed for 6 April 2001, which would have reduced the rate of capital gains tax paid on sales of business assets, winching entrepreneurs who wish to sell or merge their businesses in to a Catch-22 situation - should they take the opportunity to sell their businesses now, while the economy is stable, or sell up later for an uncertain and possibly dramatically lower price, and the possibility of no boost to taper relief. `Either way, British entrepreneurs, who are the lifeblood of our economy, lose out,' says Bull.