It is difficult to know exactly what to predict when it comes to George Osborne’s first all-Tory Autumn Statement. The Summer Budget brought with it one or two surprises, not least the radical changes announced to the taxation of dividends from April next year, and I think it would be remiss not to expect more of the same on 25 November.
Nevertheless, one thing that is likely to come as no surprise, following such an embarrassing defeat in the House of Lords, will be the introduction of plans to help ease the transition to lower tax credits. Back in July, we were repeatedly told that Britain is to become a “low welfare, high wage” economy, but the Chancellor has faced strong opposition to his original proposals to cut working and child tax credits by over £4bn. However, how much of a compromise can we realistically expect to be offered next week, given that the Government’s full year target for the reduction in UK borrowings is now unlikely to be met? The only thing we can be sure of is that any measure brought in to help ‘soften the blow’ will cost, at a time when the Chancellor cannot afford to spend, and we should therefore be prepared for what is to be given with one hand, to be taken away with the other.
So, how might we see a reduction in the cuts to tax credits being funded? One suggestion might be an increase in fuel taxes, specifically diesel duty and Vehicle Excise Duty rates, in light of the recent VW scandal. There are also whisperings of a further crackdown on tax avoidance and I would not necessarily be surprised to see new measures introduced to tackle the issues surrounding personal service companies and the IR35 legislation that has been under review for some time.
Speculation also surrounds the current pension regime, following the Chancellor’s mention in the Summer Budget of a new ISA system, whereby tax relief for pension contributions would be denied on the way in. However, this would represent such a significant change to the existing system, which will require considerable consultation, and I therefore suspect that we may have to wait until the next Budget before any further announcements are made in this regard.
Whilst on the subject of pensions, the Universal State Pension, which will broadly see new pensioners receiving a single weekly flat rate of state pension, will come into effect from April next year and will coincide with the abolition of Class 2 NICs and the reform of Class 4 NICs to include a new contributory benefit test. Now those of you who read my predictions ahead of the Summer Budget, will know that I expected an announcement increasing the rate of Class 4 NICs, payable by the self-employed, in line with the rate of Class 1 NICs paid by employees, and whilst my prediction may have been wide of the mark back in July, given the sudden need to plug the gap that would otherwise have been filled by the cuts to tax credits, might the Autumn Statement provide the setting for such an announcement instead?
Finally, in terms of non-tax issues, I expect the Chancellor to give further updates on devolution, housing and infrastructure, together with the first comprehensive Spending Review since the Office for Budget Responsibility’s inception in 2010.
