Whoops, did somebody call it a Budget? It wasn’t us, guv, honestly. But so much for the secrecy of the red briefcase. Was there ever such a heavily-trailed Budg…. err, Autumn Statement? (Whoops, there we go again.) We did seem to be getting a lot of the essential points well ahead of this afternoon’s Commons address. And every media pundit seemed to be intent on saving the Chancellor the trouble of standing up and delivering it.
So how did the pundits do? We’ll give them a 97% accuracy rating, which is well ahead of the norm. But then again, there are good reasons why it was in everyone’s interest to have so much of next year’s detail now,
For one thing, the actual 2015 spring budget in March will be so close to the May election that it would have been a brash Chancellor who opened himself up to allegations of last-minute crowd-pleasing. (No, seriously, perish the thought…) More importantly, the whole purpose of the Autumn Statement is to take much of the uncertainty out of the spring Budget speech. The idea is to give tax planners and advisers a chance to get their paperwork in place well ahead of April.
New Maths, Few Details
But then, we might ask, just how much uncertainty was there in the first place? We’ve always known, for instance, that the Treasury doesn’t have much room for manoeuvre when it comes to pre-election giveaways. It was already pretty clear that this year’s £86.6 billion budget deficit target was going to be unworkable, because poor tax revenues had made the projected £11bn cut an impossibility.
In fact, the Chancellor said, the outturn for 2014 is going to be a disappointing £91.3 billion. Cue much heckling from the Labour benches. That was a poor result, he conceded, and next year’s won’t be much better. But undershoot will turn to over-schievement in 2016, and the four years of the next parliament will see us moving to a £4 billion surplus in 2018 and a £23 billion surplus by 2019.
Where were the Chancellor’s calculations? Unfortunately he’d left his sums in the back pocket of his other suit at home, so we couldn’t check the maths. But he said that part of the improved forecast was down to a change in the way that the Office of National Statistics calculates the budget deficit. Yes, really.
There was more heckling when Mr Osborne told us that the Office for Budget Responsibility had also been messing with the economic calculations which had allowed it to upgrade its growth forecasts for 2014 to a heady 3% – two and a half times as fast as Germany – and an impressive 2.4 per cent in 2015. It was all down to Brussels’s changed calculation methods, he said. The same ones, presumably, that saw drugs and prostitution going into the GDP figures this year? It isn’t every day that George finds something to thank the European Commission for
But there was excellent news on the jobs front, he told us. And the OBR is currently predicting five years of above-inflation wage rises, he said. Inflation would be down to down to 1.5% this year, 1.2% in 2015, and 1% in 2016. Well below Bank of England targets, certainly, but has anybody told the deflation worriers yet?
But back to the media forecasts. Yes, we always knew that Mr Osborne would break the bad news that austerity will now continue into the middle of the next parliament. And we’ve always suspected that would be looking for a Commons vote to back a new fiscal mandate that balances the government budget by 2017-18. The only thing we didn’t know was the exact form that it would take.
“Very significant cuts in public spending” are coming, said the Chancellor, with £10 billion of cuts in prospect this year. Savings of £13.6bn are due in 2015-16, and they will remain “on a similar scale” for the following two years. Which, combined with the beneficial effects of falling unemployment costs, allows £2 billion of new money to be allocated to the NHS and £1.2 billion to surgeries. (The proceeds from bank fines.)
And yes, we already knew that personal allowances were due to rise in April, although as it turned out we were around £100 low in our expectations. Last spring’s Budget contained a firm undertaking that the starting point for income tax was to be raised from £10,000 to £10,500 with effect from April 2015, but Mr Osborne raised it to £10,600. (On the way to an eventual £12,500, apparently.) And the 40% income tax threshold would rise by 1.25% from £41,865 to £42,385, which would lift perhaps 200,000 people out of the higher rate band. (The government is aiming at a £50,000 threshold by the end of the decade,)
All accompanied by a continuing crackdown on tax avoidance, which is intended to raise £5 billion of extra reveues over the next few years. A 25% tax on multinationals’ UK-earned profits was aimed predominantly at what Mr Osborne called “technology tax” avoidance (Google, Amazon and the like, although no names were mentioned.) The general gist of it is that it will be levied on multinationals’ UK-derived profits if it can be proved that they would otherwise have moved the money out of the country to avoid UK tax.
Sounds great. But can that be achieved? And if so, how without adding further annoyance to our foreign partners? The devil, we suspect, will be in the details, and it might get ugly.
The banks, predictably, are also in the firing line. Mr Osborne announced a £4 billion crackdown on banks’ ability to reduce their tax liabilities by shifting figures out of years during the next five years. Not to mention a new crusade against “special vehicle” investments by wily investors. All pretty much as expected.
On the subject of shooting fish in barrels, the Chancellor took an easy swipe at non-doms, who he said will henceforth have to pay more to preserve their status. Those who have been in Britain for 12 of the past 14 years will now have to pay £60,000 to preserve their non-dom tax status. And for those who’d scored 17 out of the past 20 years the bill rises to £90,000
Benefits On A Tight Rein
Just for once, there were relatively few surprises in the welfare budget, apart from a resolution to continue the near-freezes in working age benefits for another two years, and to hammer people whose entitlements were questionable as a result of immigration rules. The Treasury will be cutting £1 billion from the total welfare spend against the original 2014 Budget forecast.
Business Help and the ‘Northern Powerhouse’
Mr Osborne announced a review of business rates, which have been accused of stifling small company growth, and a doubling of the small business relief for small companies for a further two years. Plus an increased £1,500 allowance for pubs and restaurants. There were changes to various employee taxes for junior staff and struggling smaller employers.
Mr Osborne has been under a lot of pressure to improve the government’s support for businesses in the north of England. In practice, however, there were few of the large-scale incentives and structural projects that we’ve seen in prevous budgets. That is, unless you count a £250 million science investment based mainly in Manchester (but with branches in other northern cities), and the prospect of some improvements to the rolling stock on northern railways.
Mr Osborne didn’t surprise anybody either with his announcement of new devolved powers and budgets to the metropolitan authorities of several northern cities (see the Manchester example), and also the shift of corporation tax powers to Northern Ireland.
Businesses in Belfast are hoping for a 12.5% corporation tax rate that will match those of southern Ireland. But will they get it? And, by encouraging growth, can it result in an overall reduction of subsidies to the region? The Treasury says it is happy to consider the change if the authorities can prove that they can deliver the improvements. Watch this space.
It’s not every day that we welcome a more complex piece of tax charging, but the Chancellor’s progressive revision of the stamp duty system on higher-priced house sales is welcome – not least, because the old and very clumsy “slab system” of broad price banding created all kinds of anomalies at the margins of the bands – with both buyers and sellers desperate to agree deals that kept sale prices within certain bands so as to avoid huge tax bills.
The ‘slab rate’ will be abolished from tonight, meaning that from now on, tax rates will only be paid on the marginal amount by which the sale price exceeds the threshold. (As with income tax, for example.)
The new stamp duty rates are as follows:
- Homes worth up to £125K pay no duty
- Homes of up to 250K are levied at 2%
- 5% is charged on homes worth up to £925K
- 10% on homes worth up to £1.5m
- 12% on all homes worth more than that.
98% of homes will see lower stamp duties, the Treasury says.
ISAs and more
We already knew about the death of the 55% death tax, of course. And we’re expecting the new pensioner bonds announced in the spring budget to arrive soon. But there was another surprise in the ISA department. The savings limit rises to £15,240 during the coming year. And most importantly, when an ISA holder dies, the tax-free status passes to the inheritors. That’s a potential biggie that will keep advisers thinking for some time to come.
And so the Chancellor sat down, mopping his brow only slightly -although his voice seemed to have gone up to 11 on the tension scale. It wasn’t an unfair Autumn Statement, and it didn’t give away a whole lot of things that the Chancellor couldn’t afford. It could have been a lot worse.