Room for fiscal measures
Expect some tinkering with tax and pensions
New Chancellor Philip Hammond unveils his Autumn Statement on Wednesday and is expected to slow down his predecessor’s deficit reduction programme, scaling back on austerity to give himself room for manoeuvre on fiscal measures.
State pension payments consume an ever-larger share of the national cake and the triple lock may go.
Future pension increases could be linked only to average earnings rather than being guaranteed to be the highest of the three measures of 2.5%, earnings growth or inflation.
Spending will also have to be allocated to HMRC’s ‘making tax digital’ programme. Hailed as the end of the tax return, it is nothing of the sort but means fundamental changes in the way each of us interacts with HMRC. Digital taxation will impact business tax reporting, with companies joining the scheme later than sole traders.
Corporation tax rates are due to reduce to 17% by 2020, and given the trend on both sides of the Atlantic this is one area where the Chancellor is likely to restate the commitment to cut tax rates.
Private landlords would also like to see him backtrack on the proposed restrictions to loan interest relief, due to be phased in between 2017 and 2020.
Public sector pension schemes are running into problems with the lifetime and annual allowance restrictions, and we may see changes there.
The lifetime allowance inhibits pensions saving and is hard to justify at its historically low level of just £1 million. The tapered annual allowance for high earners penalises senior public servants and could also be reformed.
The proposed ‘Lifetime ISA’ for the under-40s may also divert pension savings. Many providers will not be ready to offer LISAs by April 2017, so their introduction could be delayed or even scrapped. ISA limits are due to increase to £20,000 next year and already offer generous tax breaks for those able to save.
If the Chancellor increases the overall take from National Insurance Contributions (NIC) he could raise tax revenues while leaving income tax rates unchanged. NIC is overdue for reform, and changes might include widening the categories of income on which NIC is charged.
So where will those who are ‘just about managing see real tax savings?
Income tax rate changes are likely to be announced in the spring Budget rather than in the autumn statement, but Mr Hammond may want to indicate his preferred direction of travel. He could give with one hand and take with the other to redistribute to the needier.
The tax-free personal allowance is the most valuable relief by far for the lower paid. It currently stands at £11,000 and is expected to increase to £11,500 from April 2017, then to £12,500 by the end of this Parliament in 2020. Could these increases be accelerated?
The basic rate tax threshold is currently set at £32,000 but increases to £33,500 in April 2017, meaning the first £45,000 of income is taxable at no more than the basic rate of 20%.
Mr Hammond may increase the combined threshold up to £50,000 before 2020, although Scottish taxpayers will have to wait for the Scottish government budget on 15 December to find out if they too will benefit from increases in the basic rate tax band.
Peter Young is head of private client tax at Johnston Carmichael