Autumn Statement Crystal Ball

Published / Last Updated on 21/11/2016

Autumn Statement Crystal Ball.

Much has been written about the Autumn Statement (the mini budget) due to be delivered by Chancellor, Philip Hammond, on Wednesday, 23 November 2016.

Given that President elect Donald Trump is yet to be inaugurated and the UK is yet to trigger article 50 to commence negotiations for Britain leaving the European Union, we do not see the Autumn Statement having too much "meat" in it.

Clearly, the government needs to send a clear message that Britain is "open for business" and we may see:

  1. A continuation of subsidised business rates for smaller businesses
  2. A continuation of subsidised employers national insurance contributions for smaller businesses
  3. A reduction in corporation taxes across the board to stimulate new business investment in the UK

For working families, there is likely to be some support for so-called "JAM” (just about managing) families. There is much speculation that some form of compensation will be offered to those that suffer a reduction in tax credits when reductions in benefits support start in 2017.

National Living Wage - expect increases to this to offset reductions in tax credits, but unlikely to take effect until April 2017.  The aim is simple, force employers to pay employees enough so that they do not rely on tax credits.  As a trade off, we may see some early corporation tax reductions. 

How could wage increase and tax cuts be funded?

Yet again, it will be middle and higher earners that bear the brunt. Already, measures are in place for tax at quite 'horrific' levels for some larger yearly pension contributions and those that have built up significant pension funds.

These will remain although we know it is still on the government agenda to totally revamp tax relief on pensions and a flavour of government thinking has already been disclosed with the launch of the Lifetime ISA (LISA).

Starting in April 2017, the LISA is where people below the age of 40 are allowed to save in a Lifetime ISA (with a 25% government bonus) towards either their first home purchase deposit or leave LISA savings as a retirement pot.  

It is also universally accepted that tax relief on pensions will, at some point, be made uniform with say 25-30% income tax relief for all contributions and the removal of higher rate (40%) and additional rate (45%) tax relief.  In short, lower earners will be encouraged to save more whereas higher earners, with the loss of higher rate relief, will subsidise this.

Autumn Statement Predictions:

Immediate actions that are likely to be taxed are things like employee benefits such as gym membership, car park spaces at work and mobile phones.

In addition, we may also see increased taxes on company cars. Why would this be? It tends to be middle and higher earners that have the benefit of company cars and company funded fuel. Those cars are usually imported or are assembled in the UK by foreign owners.

There are also many types of investment products that have not been targeted for nearly 50 years. For example, insurance investment bond taxation is still based upon the Finance Act 1968 and offers preferential tax treatment for all people making withdrawals over a 20 year period and in particular offering the ability of higher rate and additional rate taxpayers the ability to defer taxes for 20 years with then potentially not having any taxes due in retirement if they then become basic rate taxpayers (this is called top slicing relief).

Housing:  We have already seen landlords hit with additional stamp duty levies and restricting the amount you can offset interest and expenses by to 20% relief.  Despite, some foolish commentators suggesting house prices government must drive house prices to fall, they will not.  The spectre of negative equity for many "JAMS" is just too painful.  We see marginal measures such as landlord managing agent costs born by the landlord only and also some incentives offered in the building trade to build more affordable housing.

That said, as we mentioned earlier, we do not see the Autumn Statement being anything other than a fairly modest "mini budget" in view of the significant political upheaval due in the first quarter of 2017.

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