The Chancellor of the Exchequer delivered his latest Autumn Statement to Parliament today. Setting aside the fact that December does not count as “Autumn” in my book, I have to say that his speech was somewhat disappointing and consisted of a series of rather uninteresting and frequently repetetive announcements. As ever, the Devil will be in the detail, but Mr Osborne focused his attention on three rather badly defined areas, namely: “Protecting the economy”, “Growth” and “Fairness”.
Protecting the economy
The Office for Budget Responsibility is predicting a “more subdued and uneven recovery than expected with growth weaker and inflation higher than forecast”. In other words: “It’s worse than we thought!” According to the blurb published as soon as Mr Osborne sat down, the Autumn Statement sets out:
- A further £6.6 billion package of savings from welfare, overseas aid and Departmental spending, which will fund £5.5 billion of additional infrastructure investment and support for businesses;
- A spending envelope for 2015-16 consistent with the announcement in 2011 that spending for 2015-16 and 2016-17 will continue to fall at the same rate as the Spending Review 2010 period;
- Tax measures that support growth, reward work, help with the cost of living and ensure that those with the most contribute the most.
No, I don’t know what it means either.
To enable the UK to compete with emerging economies, the Government is taking action to “rebalance and strengthen the economy”, including:
- A further one per cent cut in the main rate of corporation tax from April 2014, to 21 per cent;
- A significant temporary increase in the Additional Investment Allowance, from £25,000 to £250,000 for two years to support small and medium-sized businesses;
- Devolution of a greater proportion of growth-related spending to local areas from April 2015, in response to Lord Heseltine’s review of economic growth;
- Creation of a £1 billion Business Bank to help smaller businesses access finance and support;
- Enabling UK Export Finance to provide up to £1.5 billion in loans to finance small firms’ exports;
- Increased funding for UK Trade and Investments and extra support for the GREAT campaign to showcase Britain’s capabilities.
This is generally good news in my opinion, but it still smacks of fiddling with the detail while the big picture remains a mess. For example, cutting the main rate of corporation tax to 20%, the same as the current rate for “small” companies, would simplify the corporate tax regime at a stroke. It would also undercut any defensible argument in favour of exotic tax planning by large multinationals, as it would be the lowest corporate tax rate of any of the major Western economies.
People with an aversion to Government “spin” should look away now. If ever a word was more abused than fairness, I cannot think what it is. This is what the Government said: Fairness is a fundamental aspect of plans to reduce the deficit and protect the economy. The Government will help to ensure that it pays to work, supporting pensioners and those most in need, and delivering a progressive tax and welfare system that is affordable and encourages growth, by:
- Supporting those on low and middle incomes by increasing the personal allowance by a further £235 in April 2013, taking it to £9440;
- Cancelling the 3.02 pence per litre fuel duty increase that was planned for 1 January 2013. The 2013-14 increase will be deferred to 1 September 2013;
- From 2014-15, reducing the lifetime allowance for pension contributions from £1.5 million to £1.25 million and the annual allowance from £50,000 to £40,000;
- Uprating most working age benefits and tax credits by one per cent for three years from April 2013, excluding disability and carers benefits;
- Increasing the higher rate threshold for income tax by one per cent rather than inflation in 2014-15 and 2015-16;
- Increasing the basic State Pension by 2.5 per cent;
- Targeting the promoters of aggressive tax avoidance schemes and the closure of loopholes;
- Tackling offshore tax evasion by the creation of a dedicated HMRC unit, maintaining the momentum from the Government’s recent agreements with Switzerland and the US.
All of the above points sound good, but there is very little in the way of relief from the effects of the economic downturn generally and inflation in particular. Is an extra £47 a year from the increase in the personal allowance really going to help much? In any event, I expect that we will be seeing a substantial Finance Bill in the Spring, notwithstanding the apparent lack of detail in what we have heard so far. There is always plenty of work for the tax legislators!
Carl Barwick – Tax Manager
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