Tax boost for indebted?

With many people in so much debt they may consider debt management plans or individual voluntary arrangements, it could be very timely if chancellor George Osborne delivers a tax boost in the Budget this week.

Already Mr Osborne has hinted at possibly cancelling the scheduled rise in fuel duty set to take effect in April, but further room for flexibility may have emerged through an analysis of the state of the public finances.

The Ernst and Young Item Club estimated these will be £140.2 billion in the coming financial year, a large figure but over £8 billion less than the previous Treasury estimate.

And this gap could potentially allow Mr Osborne some room to help those most in need, such as motorists hit by higher fuel costs.

However, those hoping for a large cut in any tax to help them significantly in their hour of need may be indulging in wishful thinking, according to senior economic advisor to the body Item Club Goodwin, who suggested Mr Osborne will be cautious in view of the uncertainty and fragility of the economic situation.

He remarked: “Given how wary the chancellor has been of sending the wrong signals to the financial markets, we expect him to hold back the bulk of the windfall to guard against potential slippage later on.”

The Item Club has also argued the chancellor should not cut back on his plans to trim the deficit.

By contrast, the Labour Party is arguing for tax cuts, with a key proposal being to help drivers by cancelling the increase in VAT on fuel, which went up from 17.5 per cent to 20 per cent in January along with other goods on which the tax is levied.

By Amy White