Times they are a-changing. So are taxes

One commitment this government is definitely keeping to is to overhaul the tax system, where we already have a volume of change that would baffle even weathermen used to keeping track of our climate.

One commitment this government is definitely keeping to is to overhaul the tax system, where we already have a volume of change that would baffle even weathermen used to keeping track of our climate.

This April sees the demise of Miras and the married couples' allowance, revised national insurance levels (especially for the self-employed), basic rate tax dropping from 23 per cent to 22 per cent, new rules for charitable giving, attacks on personal service companies, plus a host of alterations extend-ing to April 2002 when a new car benefits tax system comes in.

Clearly, the Chancellor could simply stand up on 21 March, comment on the weather, and sit down. But there will surely be even more changes in the Budget, many probably trying to improve our record on technology and enterprise to mirror America in job and opportunity creation.

With healthy tax revenues, he certainly doesn't need to raise taxes - indeed, his attention may instead be to spending more, though major decisions may wait for the summer's comprehensive spending review. So what might be in store?

The tax burden

Is the tax burden going up or down? Those at the higher end of the income scale lose money to national insurance changes - those at the lower end do better out of the 10 per cent tax band. Working families' tax credits help many, but the effect is uneven.

If you are a driver who enjoys drinking, smoking, insuring and moving house, you will have your own views on your tax burden. It all depends where you are sitting. But I can't see the Chancellor cutting the tax burden to any significant extent. Any cuts will be concentrated at the lower end of the income scale. The main personal allowance is to be inflated from £4,335 to £4,385. It could go up further, but I think he will extend the 10 per cent tax band, perhaps to the first £2,000 of taxable income.

The starting point for higher rate tax kicks in at little more than 1.5 times average earnings. They have been rising much faster than this start point, so more people are creeping into the 40 per cent band. This is fiscal drag, not Hector in a dress, but something of a stealth tax.

If the Chancellor wants to get more money into the NHS, there might be a millisecond of thought to giving tax relief for private healthcare contributions. A dose of hypothecation, earmarking a particular tax rise for spending on the NHS, might get a longer thought. But one to think about for the future is to allow private health care provided by an employer to be a tax-free benefit, if the cover is given to all employees. It could just get more money indirectly into the NHS and would presumably increase the country's total spend on health care.

Capital taxes

The Green Budget pointed towards a faster capital gains tax "taper" for holdings of business assets. This holds out the prospect of 10 per cent CGT rates for selling up the family business after five years. But, despite what a lot of people thought they heard, this won't apply to your holdings of a few shares in "Xplc". There, the best you can hope for is a 24 per cent rate after 10 years.

Inheritance tax has been thought to be in for a revamp in every Labour Budget. So far, nothing has happened. The message has got home that IHT is a worry for many people - even if few actually pay it on death - so extending it would be far from popular. I do not now expect any major changes to IHT except, perhaps, a tightening of what qualifies for business property relief.

Stamp duty looks set for another rise, perhaps to 5 per cent as a top rate, probably phased over two years. This will be sold as a means of curbing house-price rises, the argument being that if the costs of moving go up, it will be less attractive and will take some steam out of the market. But if people are less keen to move, it might increase the competition for houses, leading to higher prices.

Many would like to see stamp duty on shares abolished but that may have to wait for evidence of a loss of business from the City to places such as Frankfurt or the internet.

Entrepreneurs

So what might the innovators expect from the Budget? One would be a better regime for share options given to staff in their new businesses. Paying in shares or share options can be attractive, not least when the company isn't generating cash.

But later tax bills, particularly NICs, can be crippling. Extra loss reliefs for when things go wrong would help, as would the mooted tax rebates for investing in research and development.

And finally ...

One area hard to call is the traditional "sin tax" on alcohol, tobacco and the like. Our duty rates are far higher than many of our EU neighbours. Smuggling is attractive. Perhaps 80 per cent of handrolling tobacco in the UK has come in illegally. So we may see a standstill and tighter enforcement.

And the Chancellor needs to look at gambling taxes in the electronic age, where business - and therefore tax revenue - slips out of the UK taxman's net with firms setting up in places such as Gibraltar.

Life is changing, so our taxes have to keep changing to maintain the flow into the Government's coffers.

John Whiting is a tax partner at PricewaterhouseCoopers