George Osborne will present his second 2015 Budget on Wednesday 8th July.
What we can expect from this ‘Emergency Budget’ given that it will be the first all Conservative budget of George Osborne’s career? According to Conservative Party promises, this is a taste of what we could expect later this week.
Anti-Avoidance: The government has pledged to raise £5billion from measures combating tax avoidance and evasion. They have promised to crack down on avoidance and those who tax plan aggressively. It is expected that changes for ‘non-doms’ are likely given that increases to the annual tax charges they pay was a feature of the Conservative manifesto.
Austerity: This has been a sizeable issue for some time now. Osborne has announced plans to run a budget surplus in what he calls “normal times”. However, there is some confusion about the definition of “normal times”.
What might happen?
Cuts are expected for the next three years. Observers have suggested that the cuts in the next two financial years are very likely to be deeper than anything seen in the last Parliament. This, inevitably, has caused concern for the NHS, local government, police forces and higher education, which have all expressed fears for their future financial stability in the face of further austerity.
Business Taxes: The last Parliament focused on cutting Corporation Tax so it is unlikely that the Chancellor will do a u-turn. There are currently promises to review business rates by the end of 2015 and increase the annual investment allowance to “significantly more” than the £25,000 it otherwise goes down to in January 2016.
What might happen?
Commentators are suggesting there might be a need for Osborne to change his tack with business taxes. The current model is said to be risky as it includes penalising UK banks with a ‘global footprint’ and while it has reduced some of the systemic funding risks the banks faced, Osborne has to choose whether to stick with this approach, drop the tax take, or increase tax rates on UK business.
Devolution:
The government is set to devolve more fiscal power to England, Wales, Scotland and Northern Ireland. Most significantly, the Conservatives plan to fully devolve income tax rates and rate bands to Scotland, with the first 10 percentage points of Scottish VAT revenues staying in the country, and the Barnett formula affecting fewer revenues.
Pensions: The Conservatives have pledged to restrict tax relief for additional rate (ie 45 per cent ) taxpayers as a way of funding their promise to increase the inheritance tax threshold. If this is realised in the Summer Budget, pensions relief would be restricted for those earning over £150,000 a year and the lifetime allowance would be reduced to £1m.
What might happen?
Ideally, pensions would not be touched in the Budget, since frequent changes tend to undermine the confidence of those deciding whether or not to lock funds away for decades. However, it is unlikely that pensions will be left untouched as the amounts of money at stake are considerable.
Personal Taxes: The Conservative manifesto outlined plans to increase the personal allowance to £12,500 by 2020/21, increase the transferable marriage allowance in lie with that and to up the threshold for higher rate tax to £50,000. Alongside this, Osborne has promised that no one working 30 hours on minimum wage will pay income tax.
What might happen?
It is strongly suspected that the Chancellor would very much like to reduce the top rate of tax from 45p to 40p. We can be certain that Osborne is not afraid of making changes midway through a tax year; he’s done it before with CGT, so this Summer’s Budget could bring more change, and it might again be CGT that he looks to.
Property Taxes: It is expected that revenue will be generated from high value properties by extending existing taxes. Council tax is one area which is expected to be reviewed and updated. Commentators report that this is an area which is ripe for reform and has the potential to drastically increase revenue.
Tax Revenues: The Conservative manifesto’s commitment to maintaining income tax, national insurance and VAT rates could, in fact, prevent the Chancellor from raising much needed capital. These three taxes together account for two-thirds of all tax revenue generated.
What might happen?
Some commentators have suggested that Osborne might try to increase the number of taxes or expand the tax base. Alternatively, there are suggestions he could start to bring in reforms to improve the functionality and profitability of the entire tax system for the longer term.