DONALD CAMPBELL
Analysis

Alistair Darling spoke for a little over 50 minutes before commending his first Budget to the House. Included in his proposals were some interesting changes to personal taxation.

The most important changes, of course, come from Gordon Brown's last Budget a year ago. The basic rate of income tax will be 20% from April 6 this year and the 10% rate is being abolished, apart from savings income in a small number of cases.

The main beneficiaries of this are people earning between about £19,000 to £35,000. People above this level are largely unaffected. People below this level will be worse off, unless protected through tax credits.

Not surprisingly, no further announcements were made on capital gains tax. The Chancellor's figures indicated that the entrepreneur's relief announced in January would allow the vast majority of entrepreneurs to continue to pay capital gains tax at 10% under the new regime. Of course, property owners may well look forward to being taxed at 18%.

Mr Darling also committed both the current Parliament and the next Parliament, to the amusement of the opposition, to adopting changes to the non-domiciliary rules announced in his pre-Budget report and to not changing those rules.

He did, however, introduce some important changes which will be welcomed by business groups. Children will not have to pay the £30,000 charge - it looks likely that US citizens will be able to offset it against their US tax bill and the damaging proposals on offshore trusts have been withdrawn.

He also introduced some small and welcome changes to the Enterprise Investment Scheme (EIS) and to the Enterprise Management Incentives (EMI) scheme. The maximum investment that will qualify for income-tax relief under EIS has been increased to £500,000, and the maximum value of shares that can be held under option under EMI has been increased to £120,000.

New restrictions were introduced limiting the scheme to companies with no more than 250 employees, and including shipbuilding, coal and steel production in the list of trades which cannot have an EMI scheme.

It is difficult to see if these restrictions will have a significant impact, as companies adopting this scheme are already limited to gross assets of £30m and total shares under option of £3m. These changes take effect from April 6 this year.

Also released was a consultation document on the Enterprise Investment Scheme, including questions designed to improve the efficacy of the scheme as a whole. EIS is an extremely complex relief and its rules can occasionally conflict with the commercial demands of the companies it seeks to support. Hopefully, this consultation will yield effective change in the not-too-distant future.

To encourage investment generally, an annual investment allowance of £50,000 will attract 100% capital allowances. This will operate to offset the reduction in plant and machinery capital allowances to 20% per annum.

The Chancellor spent some time talking about environmental measures and it is clear that this will be an area of focus in the future. There may be a "plastic bag tax" next year and there will be an extra 0.5p per litre above inflation on petrol from 2010.

In line with other green initiatives, businesses will continue for another five years to be able to claim 100% capital allowances on cars with low emissions - defined as not exceeding 110g/km (a reduction on previous levels). High-polluting cars will face an extra level of vehicle excise duty from 2009.

Another welcome concession was the introduction of a three-year transitional relief for charities, who will be able to continue to claim tax repayments from HM Revenue and Customs at the 22% rate, despite the reduction in the basic rate of income tax to 20%.

The government has been consulting on what it calls income shifting, where individuals (usually married couples) arrange their affairs so that income is spread between them to utilise the lower rates of tax. This is in response to the Arctic Systems case where HM Revenue unsuccessfully attempted to assess Mr Jones for income received by his wife from their jointly owned company.

The government yesterday decided to defer the rules for a year, to allow for further period of consultation.

Overall, it was welcome that there were not too many major initiatives. The gigantic size of the Budget package was noticeable in these environmentally aware times, though.