Autumn Statement 2015: What will Osborne do?
Ahead of Autumn Statement 2015 on November 25, we asked Moore and Smalley’s head of tax, Tony Medcalf, to give us his forecast on what might be announced.
What will be the key battleground in this autumn statement?
The cuts to the tax credit system will be a major focus of the chancellor’s speech, as he has already indicated.
Having recently had the proposed level and pace of cuts to tax credits rejected by the House of Lords, the chancellor has said he will give more detail on how he will smooth the transition of their introduction.
I expect him to use this opportunity to repeat his previously stated aspirations to see Britain moving towards a “lower welfare, higher wage economy”.
Coming just four months after a summer budget, will we see any significant fiscal changes in this budget?
I don’t think so. The big announcements came in July and I would expect this autumn statement to be more focused on reviewing expenditure than any major adjustments to the tax system.
I expect the chancellor will use this occasion to set out the other ways he intends to grow the economy, focusing on matters such as boosting exports, devolution, the Northern Powerhouse, reducing red tape, and so on. The focus will be on government spending, so we may hear some announcements on road and rail projects, as well as areas where the government wants to save money.
It would appear to me that Mr Osborne is trying to get back to using the Autumn Statement as an economic forecast and a review of spending ahead of the main budget in March.
If there was to be any tinkering with tax rates, what could he do?
He may announce something around reducing National Insurance Contributions for people on certain incomes. This would be something that would be aimed at softening the blow of removing working tax credits.
Income tax seems fairly set for the time being, there’s no scope for doing anything with VAT and he’s already made a number of big announcements on corporate tax rates and investment allowances.
Before the summer budget there were calls from some quarters within the Tory party to reduce the top rate of income tax to 40p, but it would be a very brave chancellor to do that in the current climate, especially with the planned cuts to tax credits.
The opposition has called for the chancellor to shelve income tax cuts for people in the 40p tax bracket and abandon the planned rise in the threshold for higher rate tax payers to £50,000. However, I think it’s unlikely the chancellor will put the burden on people in this bracket as helping middle-earners was central to many of the Conservatives’ election pledges.
Again, I expect any changes to the tax code to be tinkering around the edges, rather than anything fundamental.
Will there be any changes to pensions?
Every year there’s talk about scrapping tax relief on pension contributions, but I don’t see how the chancellor can reduce the reliefs any further without completely removing the incentive for people to save into a pension. The lifetime allowance has already been reduced to £1m and the annual allowance has gone down to £40,000.
Reducing tax reliefs further would fly in the face of everything recent governments have been doing in trying to get people to take saving for retirement seriously. Besides, there’s been so much pension reform in the last couple of years, I just can’t see any major announcements on pensions.
What about household budgets? What changes can we expect here?
One of the areas where the chancellor does have some room to put up taxes is fuel duty. There is an expectation that oil prices will stay low for another two to three years, so you would not expect fuel prices to rise significantly in that time. Therefore, he could put a couple of pence on the price of fuel and it would still be lower than motorists were paying at the pumps a year or two ago, so it’s probably the easy win to raise some extra revenue.
Keep an eye on our website for post autumn statement reaction and analysis from our tax team.