Income tax hikes could lie ahead

AS widely expected the Chancellor did not tinker with income tax or national insurance ahead of the Budget next year.

But he did confirm in the pre-Budget report that the personal allowance will be raised in line with inflation from April 2002 from £4,535 to £4,615. This is the amount of money everyone is allowed to earn each year before income tax is levied.

John Whiting at PriceWaterhouseCoopers says this could be an early indication that he intends to raise either income tax or national insurance contributions (NIC) next April.

'If the Chancellor is looking to raise extra funds for 2003 then national insurance is the obvious target. Adding an extra penny on income tax would be easy to explain and justify – but I think he‘s more likely to raise the top limit on NIC for employers,' he says.

And Chas Roy-Chowdhury at the Association of Chartered and Certified accountants (ACCA) agrees. He says: 'Gordon Brown might bite the bullet soon and uncap the limit on NIC. The NIC tax system is so complicated he may even look at bringing it together with income tax.'

However, he points out that the Chancellor is particularly concerned by the state of the economy at the moment and he won‘t want to damage consumer confidence further.

'The Government is looking to underpin consumer confidence – so though no tax increases have been announced now, they are most probably being stored up for later. Increases to tax credits are great news, but there‘s always two sides to the coin and we‘ll have to look at the fine print of the report to see where that extra money is going to be found,' he says.

Clive Mackintosh at PriceWaterhouseCoopers says: 'No doubt the Chancellor will wait and see what the economy looks like in January and February next year before he decides what to do with income tax.'