And, as if three finance announcements in one 12-month period weren’t enough (technically four when you consider the 2014 Autumn Statement was made in December), next week’s announcement will be accompanied by a comprehensive spending review of government departments – more on that tomorrow.
Tax credits – the hotly contested topic of the moment – are expected to feature heavily next week. Big Four firms Deloitte and PwC say that families will face significant reductions to their incomes if the proposed changes go ahead.
Iain McCluskey, tax director for PwC, explains, “There are millions of people in our country who work for low pay and manage their financial lives day by day, week by week. Many will face significant financial difficulty after April 2016 when tax credit cuts will come in. The political pressure to change tack on these issues is building from all angles.”
Looking at the figures, Deloitte estimates that a family with two children and an income of £15,000, where one family member works 30 hours a week, would lose around £1,800 of tax credits a year. Similarly, reductions in child support will also begin to bite. Further proposals will mean that families will only be eligible for child tax credits for two children, with each additional child born after 2017 not qualifying for a relief worth up to £2,780 a child.
McCluskey says, “The chancellor could seek to soften the impact of the tax credit changes in other ways. He may announce that new minimum pay levels are increased or make tweaks to income tax and/or national insurance.
“The tax free personal allowance could be raised at an even faster rate, although this will have no impact on the lowest earners such as apprentices and part-time workers who earn below the threshold.
“Significantly increasing the lower earnings limit for national insurance would be of real help to lower earners and may also lessen the impact of the tax credit cuts. However, this tax change would be very expensive.”
Business groups continue to warn against walloping wealth creators further, arguing they are already threatened by the impacts of the national living wage, the apprenticeship levy and increase in insurance premium tax.
“Businesses I meet do not anticipate any real benefit from these measures,” says ICAEW director of business Stephen Ibbotson. “It is a concern that some businesses could react to the introduction of the new living wage by increasing prices and putting a freeze on recruitment for both permanent and temporary staff."
As previously reported in economia, Ibbotson also calls on the government to resist announcing “more bombshells” for business, giving them a chance to plan for the long term and focus their energies on growing the economy.
These are sentiments shared by the British Chambers of Commerce (BCC) and the Confederation of British Industry (CBI). The BCC urges the government to reduce the number of changes to business tax rules, saying that any such changes should be subject to regulatory policy scrutiny.
Dr Adam Marshall, the BCC’s executive director of policy, says, “The cost of complying with the UK’s ever-more complicated tax code has rocketed up the list of business complaints in recent years. Ministers need to put a brake on the number of changes to tax administration and compliance rules, much as they have done with other forms of regulation in recent years.”
Deloitte points out that Osborne’s review of business rates is due in this Autumn Statement. The firm says that business rates raise about £27bn annually and that, with Scotland and Wales now controlling their own business rates, devolution of the tax to local councils is to be expected. This, Deloitte says, will have a large impact on retailers.
From RSM UK, senior tax partner George Bull suggests that, for George Osborne, a chancellor known for his love of “white rabbits”, the Autumn Statement will represent a chance to dig himself out of the hole he has got into over tax credits. Bull suggests that this could be achieved by providing financial relief for those who would be affected by his original proposals.
Bull adds that the chancellor has a moral obligation to address the “direction of travel” with regards to renewable energy and pensions. In particular, he explains that families need to know how to save for their retirement and that confusion surrounding the government’s stance towards pensions needs demystifying. “This has ceased to be a political issue,” Bull says. “Real people need to make real decisions affecting the remainder of their lives.”
Raj Moody, PwC’s head of pensions consulting, says that the government is currently reviewing pensions tax relief and anticipates that it will not be until next year’s Budget that any concrete direction is given. However, he also encourages the chancellor to remove some of the uncertainty to address the growing savings gap.
Moody says, “Our research shows that six in 10 people put off saving more into their pension because they don’t understand the system. In our view, tax reform alone won’t tackle people’s pensions savings shortfall. Saver awareness, auto-enrolment contribution levels and financial education need to be part of any solution.
“Employers are currently in limbo and deciding on whether they should make changes to their remuneration packages in response. Most will be keen to maintain a competitive level of reward in comparison to peers, in what could be a completely new pensions landscape.
“Any further information from the chancellor on the direction of any changes would be helpful for businesses so that they can plan appropriately.”
Check in tomorrow for a run down on the Comprehensive Spending Review.