Chancellor George Osborne was given significant scope for manoeuvre when he presented his Autumn Statement on 25 November 2015 by the Office of Budget Responsibility (OBR), which upgraded its public financial forecasts by £27b.
This extra money, combined with a benign unchanged growth outlook (2.4% in 2015 and 2016) and a number of significant tax raising measures, ensured that the Chancellor could soften some of the austerity and announce new government spending initiatives, whilst still maintain the target of a budget surplus of £10b by 2020.
Most significantly, the Chancellor abandoned the most controversial cuts to public spending, including the proposed cuts to tax credits costing £4.4b and protecting the police budget. However, austerity is not at an end – local government spending remains tightly squeezed, and there are cuts of between 15% and 37% affecting transport, energy, business and DEFRA. In total, the cuts have been reduced from £20b to £12b. Furthermore, whilst tax credits have now been spared, the new universal credit will result in large welfare savings when introduced.
With regard to government spending, most eye-catching was the announcement of the largest house building programme since the 1970s, with a target of 400,000 new homes by 2020 at a cost of £2b pa.
Tax Raising Measures
The Chancellor is determined that business should bear increased costs to help the government balance its books. In addition to the living wage, announced previously, Mr Osborne introduced an Apprenticeship levy, which will add 0.5% to an employer’s payroll over £3m.
There will be an increase in council tax to help fund police spending, as well as a new social care precept of 2%, raising £2b.
Private landlords will face increased taxes, raising nearly £4b. Stamp Duty Land Tax will carry a surcharge of 3% on houses other than an owner’s home. CGT will become payable within 30 days on second homes from 2019 and Income tax on buy-to-let mortgages will be restricted to basic rate.
HMRC will continue to target tax avoidance. A General Anti-Abuse Rule (GAAR) introduces a 60% tax rate as a new penalty.
The government is considering the responses on the pension tax relief consultation, including the possibility of a pension ISA. An announcement is expected in the Budget 2016.
Similarly, an announcement on a secondary market for pension annuities is expected in December 2015 after the government has concluded its consultation.
The proposed increase in contribution rates for auto-enrolment will be pushed back six months to align with tax years.
There will be Inheritance Tax (IHT) protection for pension drawdown funds not fully drawn on death backdated to 2011.
The ‘triple-lock’ on the State Pension of an increase based on the higher of earnings, prices or 2.5% will continue. The basic State Pension will rise to £119.30pw and the new single-tier State Pension will be £155.65pw from April 2016.
The Treasury is concerned at the growth in pension salary sacrifice arrangements and is considering what action to take, if any.
Energy generating companies will be excluded from EIS/VCT schemes from April 2016.
There is no increase to the ISA limit of £15,240 or £4,080 for a Junior ISA. An ISA’s tax-free status can continue during probate. The government plans to consult on the possibility of equity crowdfunding in ISAs.
Deeds of Variation, which can be used as a valuable estate and IHT planning tool, will continue and will not be reformed, as many commentators had expected.
The government plans to introduce a new digital tax system in 2020, subject to consultation in 2016. This would require tax reporting four times each year for most businesses, self-employed and landlords.
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