Frank O'Donnell

Tax is going to be a major issue in the run up to the May general election as this will be the first time in decades that voters have faced tax increases across the board. A whole generation of voters has grown up expecting only cuts – at least as far as income tax, Capital Gains Tax and Inheritance Tax are concerned.

The top rate of income tax was increased to 50% in the last Budget for those with taxable incomes of £150,000 or more and there have been rises in National Insurance contributions. 

The 50% tax rate has yet to be implemented and will not affect the vast majority of voters. The same thing applies to the freezing of both personal allowances and the threshold for 40% tax.  Fiscal drag will push hundreds of thousands of investors into the 40% higher rate tax band, and some into the new 50% band.

It is once again worthwhile for wealthy individuals to take capital gains taxed at 18% rather than income taxed at up to 50%.

An increase in VAT to 20% is definitely on the cards since it raises around £12 billion a year.  An extra 1% on basic rate tax brings in an extra £4.5 billion so taking the basic rate back to 22%.

The sensible option would be to raise VAT to 20% which brings in an extra £12 billion a year and is largely not paid by lower income families because it is not applied to food, housing, travel and children’s’ clothes, the items on which they spend most of their income.  The rest of us don’t pay the tax if we don’t spend our money – we have a choice.

It also been recommended to double the duties on alcohol and tobacco which would not only raise around £8 billion in extra revenue but help in improving health and cut down on alcohol related crime.