Budget 2008: Will the Budget winners come from the top or the bottom?

Alistair Darling’s first budget is an opportunity to re-establish his and the Government’s credibility after a turbulent few months. It will also be an opportunity to define his own agenda and differentiate himself from the Prime Minister’s 10 years at the Treasury. This all has to be done against the backdrop of a slowing down in the economy and with little room for fiscal manoeuvre.

The Chancellor’s first major decision that will set the tone and scope for the rest of the Budget has to be about the structure of the tax system. This needs to be taken with the long-term goals of economic stability, fairness and administrative efficiency in mind rather than being subject to short-term pressures from highly vocal lobby groups. Corporation tax is a prime example of this. Business groups such as the CBI are calling for a cut in the headline rate of corporation tax because the UK has failed to match recent cuts made by countries like Italy and the Netherlands, but this risks encouraging a beggar-my-neighbour Dutch auction on tax with the end result that corporation tax would eventually be cut to zero.