FEAR OF FINANCE

There is little for the personal investor and saver to do in advance of the Budget these days, but trying to second-guess the Chancellor's plans is an irresistible temptation. I expect to see income tax cuts phased over the next three years to create maximum political impact, starting with a widening of the 20p tax band effective next April.

If any tax is going to be abolished I would prefer capital gains tax to be merged into income tax. This would mean that realised short-term gains could be taxed as income, medium-term gains could be averaged over the time they were made, and long-term gains - made over a period of maybe five years or more - could be exempt altogether.

It might be difficult to prevent smart accountants swapping short-term taxable gains into long-term exempt gains, but not impossible to do so, perhaps by ensuring that realised short-term gains could not be offset and only losses could be carried forward.

Tax concessions may well be appropriate to encourage middle-aged earners to put more of their income into pension contributions. The present rule allowing those aged 35 to put away 17.5 per cent of earned income tax- free, rising to 40 per cent for those over 60, is no longer enough to ensure that individuals put away enough to balance the combined effects of earlier retirement, intermittent employment and shrinking state pensions.

Something urgently needs to be done to persuade individuals to take out insurance to cover long-term health care, to help pay for nursing care at home or for a place in a nursing home. The Treasury takes the view that successful claims on such policies are not taxed so there is no case for tax relief on premiums but without an incentive many people may be tempted to take a chance that such insurance will not be needed. I would also hope to see more tax concessions to encourage mature children to look after elderly parents themselves.

It is hard to see how the Chancellor could increase still further the tax-free rewards for regular savings and investment. Tessas, Peps, corporate bond Peps and venture capital trusts offer a wide range of risks and rewards. But interest rates have halved since Tessas were introduced in 1991, and there is likely to be a substantial outflow of funds when the originals start to mature in the new year. At the very least the length of time Tessas have to be held to attain tax-free status needs cutting from five to three years.

It is also time to do something for the National Savings movement, which otherwise is in danger of withering on the vine. If the Government seriously wants to stay competitive with the Lottery the Chancellor should increase the notional interest it pays into the premium bond prize funds in order to increase the number of prizes in the monthly draw.

I still believe the Chancellor will miss an important political trick if he does nothing to help the housing market, but the best property buyers can realistically hope for is the temporary or permanent abolition of stamp duty on houses under pounds 100,000, which may or may not be enough to reverse the ominous drop in turnover in the housing market.