What the Chancellor forgot to mention in his Autumn Statement…
27th November 2015 by Fiona Hotston Moore
This week’s Autumn Statement speech (the first under the new majority Conservative Government) was well crafted by the PR men with lots of positive messages about the economy and the achievements of the Government. However, if you unpick the detail in the hard copy ‘Spending Review’ you might be forgiven for thinking it was, in fact, a Labour Autumn Statement thanks to the significant hikes in taxation which are around the corner.
The biggest challenge facing the Chancellor is the very bold and inflexible commitment he gave to run a budget surplus on public finances by 2019-2020. The very substantial tax hikes in the Statement are expected to raise a staggering £20bn by 2021. However, the Institute for Fiscal Studies and the credit rating agency Moodys have both raised significant doubts as to whether the tax measures and public funding cuts will be enough to achieve the Chancellor’s goal in less than four years. The IFS put the odds at 50:50. Perhaps the Chancellor is facing another ‘U-Turn’ or will he need to find a clever new way to calculate the budget surplus?
The proposed tax hikes are:
- The Apprenticeship levy, which will hit big businesses by 2021, is expected to raise an additional £3bn annually through PAYE. This might be considered as a cleverly disguised increase in employers’ National Insurance. This levy comes on top of the new national living wage and auto enrolment pension changes and will be further bad news for sectors such as retail, leisure and health care.
- Second home purchasers will face a 3% increase in stamp duty costs. This comes on top of the restrictions to interest rate relief for buy-to-let owners announced in the summer Budget. These measures will not upset the average tax payer but will impact adversely the traditional Tory supporter. There is a further measure to accelerate the payment of Capital Gains Tax on the sale of residential property to bring in a payment date 30 days after sale. Aside from the practical issues of doing the calculation within days of the sale, one wonders, if this is intended to give a final boost to tax collections just ahead of 2019/2020?
- Another tax by stealth is the new Social Care levy. This is a levy of up to 2% that local councils can add to their council tax bills. Perhaps we will see further such “hidden” taxes introduced in future budgets albeit this seems to fly in the face of a simplified tax system?
- In a further, and perhaps deserved attack on tax avoidance, the Chancellor announced a 60% penalty for tax avoidance caught under GAAR (the General Anti Abuse Rules). However, the Chancellor has not yet made significant progress in addressing the perceived tax avoidance by multi national companies which is where the greatest tax leakage exists.
In his Statement the Chancellor announced his biggest yet ‘U-Turn’, and an end to austerity measures, when he reversed his earlier plans to cut tax credits. However, the Think Tanks have already pointed out that the new universal credit system, which is coming soon, could cost some families £3,000 by 2020.
The education sector will have noticed a continued pressure towards Academy status for schools and colleges. The Chancellor announced he would like to see all state schools convert saving, he suggests, £600m from the education budget. These savings will come, in part, from reduced overheads in council management and the transfer of the management to the unpaid army of school Governors. Inevitably there will also be schools that close and a drive to increase shared resources (leadership, teaching staff and facilities). This is not necessarily all bad news as sharing resources at a local level can raise standards in some schools whilst opening up opportunities for accomplished teachers and head teachers.
The Chancellor announced the expected reform of the school funding system in an attempt to ensure a fairer allocation of the squeezed funding pot. However, the reality is that school budgets are already creaking and schools face fixed increases in teaching salaries and auto enrolment pension costs. Damaging cuts to teaching staff numbers are inevitable.
Finishing on a point of detail I am sure half of the working population waits with baited breath to see the Gender Pay Gap Reports that every company with over 250 employees will be required to publish from 2016. It will be fascinating to see whether these reports will show a consistent picture to that demonstrated by government statistics which show a 24% pay premium for men in skilled trades compared to women in the same jobs.
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