29 October 2018
Today the Chancellor will deliver the UK’s last Budget before we leave the EU. Will this affect his thinking? Who will fare well? Deloitte’s Head of Tax Policy, Daniel Lyons, leads the discussion.
You gave us a few predictions over a week ago. As the Budget draws nearer, has anything changed?
The only real change has been news from the Office of Budget Responsibility that the public finances are in better shape than originally thought, as tax receipts are stronger. It gives the Chancellor £13 billion’s worth of wriggle room, which makes some of the rumoured tax rises less urgent.
But tax receipts are impacted by timing differences, so this could be temporary. I still think there will be some tax increases as he is a prudent Chancellor and we need to raise more money if we are going to provide extra NHS funding and bring “austerity” to an end.
Any suggestions as to what the big tax news could be?
In my view, there are three distinct possibilities.
The first would be to cancel the planned cut in corporation tax from 19 to 17 percent. Yes, it would mean breaking a promise, but the UK’s corporation tax rate would still be low by international standards. It won’t generate much money immediately, but it could raise around £5 billion in the medium term.
I still think the Chancellor might do something with pension tax relief. He could change the rate, but this would be massively complex to implement so it’s more likely he would reduce the yearly allowance. It currently stands at £40,000 – halving it would bring in about £1 billion a year.
Then there’s income tax. The Government has promised to increase both the basic allowance and the higher rate threshold by 2020/21 but that could be frozen. Just doing that would raise more than £2 billion more tax. Whilst not as immediately obvious as a rate rise this could still be extremely unpopular.
Rumours are still circulating about a reduction in the £85,000 VAT threshold for businesses – that one won’t go away. It would bring in a lot more taxpayers, especially new companies, but I can’t see it happening. I just don’t think it makes sense given the introduction of new Making Tax Digital rules for VAT accounting and the uncertainty surrounding Brexit.
On employment taxes there’s talk of extending IR35, which is anti-avoidance tax legislation, from the public to the private sector – this would hit contractors operating through personal service companies. Another possibility is an increase in the standard rate of insurance premium tax (IPT) from 12 percent, an increase of just one percentage point would raise over £400 million but could be unpopular as it would raise household bills.
Lastly, we could hear news of a more detailed consultation on a single-use plastics tax. I’m interested to see how the Chancellor tackles that.
Do you anticipate any surprises?
I don’t think so. I think it’ll be predictable in that the big announcements will come from the areas I’ve already mentioned. The extra £13 million might mean the Chancellor does very little.
Will there be a good news story?
Well, now’s not the time to give away money and we’ve already had the fuel freeze softener at the party conference, so I can’t see what else he’s likely to announce anything significant.
Overall though, I think this will be a Budget that helps people who are just making ends meet. I doubt there will be any giveaways for corporates or the wealthy.
So not a Budget for business then?
I expect very little to change, unless he does cancel the corporation tax cut or reduce the VAT registration threshold, which would be unpopular with many very small businesses. And any increase in IPT won’t go down well with insurers.
Every Chancellor targets the ‘sin taxes’ – duty on cigarettes has risen annually since 1978. Can we expect the same this time around?
Deloitte has carried out a lot of research in this area and it is clear we’re living healthier lives – we’re smoking less and drinking isn’t as popular among young people. From a health perspective, yes it makes sense to tax these things, but I think the levies on so-called sins have peaked. It’s no longer a magic money tree.
Maybe, in the future, the Government will start taxing vaping, or electric cars because they still cause wear and tear on the roads? We’ll have to wait and see. For now, the annual increases will continue because they can, and must.
Head of Tax Policy, Deloitte LLP