In its Green Budget 2018, the Institute of Fiscal Studies (IFS) estimates the chancellor will need to find an additional £19bn a year by 2022/23 to fulfil spending promises made in the run-up to this year’s Budget on 29 October.
This will require ‘substantial tax rises, or much better-than-expected economic growth’, the IFS suggests, if the government is to meet pledges to increase spending on areas including the NHS and defence, at the same time as bringing about an ‘end to austerity’, while pursuing its commitment to eliminating the deficit entirely by the mid-2020s.
Increasing tax revenue by 1% of national income would be enough to cover £19 billion in new spending, according to the report. Such an increase would still leave the UK’s tax burden near the median for OECD countries.
The IFS suggests several options for tax increases aimed at ‘relatively well-off members of the older generation’, which it believes would ‘in general improve the efficiency of the tax system’. These include:
CGT charge to arise on death and restrictions on entrepreneurs’ relief;
NICs charged on earnings of those over state pension age and a low rate of NICs on private pensions in payment;
reforming the ‘absurdly generous’ treatment of accumulated pension pots passed on at death; and
charging council tax at a rate more proportional to house value.
The report sees as ‘risky’ any attempt to raise substantial sums from high earners, given the current reliance on just 0.6% of adults for a quarter of all income tax revenue.
Cancelling the planned cut in corporation tax from 19% to 17% in 2019/20 would raise around £5 billion in the short run, though less in the longer term.
Growth in the UK economy could return to 2% by 2020, according to Citigroup, who co-authored the report, provided the UK and the EU can agree a Brexit deal. However, outside factors such as trade wars and other current challenges to globalisation will mean continuing uncertainty around the fortunes of the UK economy for years to come. Chief UK economist at Citigroup, Christian Schulz, said: ‘even without Brexit, the UK would be facing sustained uncertainty about its place in the global value chain for many years’.
The IFS sees little prospect of a ‘Brexit dividend’ by 2022/23, with new spending on administration likely to swallow a large part of any savings on contributions to the EU.
For many commentators, pensions tax relief is one of the prime targets in the forthcoming Budget, most likely involving further reductions in the annual and lifetime allowances. Speaking to journalists last week at the IMF annual meeting in Bali, the chancellor is reported to have described the cost of pensions tax relief as ‘eye-wateringly expensive’.
Stella Amiss, head of tax policy at PwC, regards pensions tax relief for the most wealthy as a potential target. ‘The taxation of digital business and the self-employed are other areas that are likely to draw attention’, she said.
A recent survey by the Association of Consulting Actuaries (ACA) found strong support among employers for reform of the pensions tax regime. However, ACA chair, Jenny Condron commented: ‘any further reduction in the overall tax relief given to encourage pension saving in this year’s Budget would in our view undermine the prime minister’s pledge that austerity was coming to an end’. While employers want simplification, this should be approached, ‘not in a rushed and rather disorganised way, as was the case in 2015, but carefully by way of a cool and calm “open” consultation and review post-Brexit’, Condron said.
In its Green Budget 2018, the Institute of Fiscal Studies (IFS) estimates the chancellor will need to find an additional £19bn a year by 2022/23 to fulfil spending promises made in the run-up to this year’s Budget on 29 October.
This will require ‘substantial tax rises, or much better-than-expected economic growth’, the IFS suggests, if the government is to meet pledges to increase spending on areas including the NHS and defence, at the same time as bringing about an ‘end to austerity’, while pursuing its commitment to eliminating the deficit entirely by the mid-2020s.
Increasing tax revenue by 1% of national income would be enough to cover £19 billion in new spending, according to the report. Such an increase would still leave the UK’s tax burden near the median for OECD countries.
The IFS suggests several options for tax increases aimed at ‘relatively well-off members of the older generation’, which it believes would ‘in general improve the efficiency of the tax system’. These include:
CGT charge to arise on death and restrictions on entrepreneurs’ relief;
NICs charged on earnings of those over state pension age and a low rate of NICs on private pensions in payment;
reforming the ‘absurdly generous’ treatment of accumulated pension pots passed on at death; and
charging council tax at a rate more proportional to house value.
The report sees as ‘risky’ any attempt to raise substantial sums from high earners, given the current reliance on just 0.6% of adults for a quarter of all income tax revenue.
Cancelling the planned cut in corporation tax from 19% to 17% in 2019/20 would raise around £5 billion in the short run, though less in the longer term.
Growth in the UK economy could return to 2% by 2020, according to Citigroup, who co-authored the report, provided the UK and the EU can agree a Brexit deal. However, outside factors such as trade wars and other current challenges to globalisation will mean continuing uncertainty around the fortunes of the UK economy for years to come. Chief UK economist at Citigroup, Christian Schulz, said: ‘even without Brexit, the UK would be facing sustained uncertainty about its place in the global value chain for many years’.
The IFS sees little prospect of a ‘Brexit dividend’ by 2022/23, with new spending on administration likely to swallow a large part of any savings on contributions to the EU.
For many commentators, pensions tax relief is one of the prime targets in the forthcoming Budget, most likely involving further reductions in the annual and lifetime allowances. Speaking to journalists last week at the IMF annual meeting in Bali, the chancellor is reported to have described the cost of pensions tax relief as ‘eye-wateringly expensive’.
Stella Amiss, head of tax policy at PwC, regards pensions tax relief for the most wealthy as a potential target. ‘The taxation of digital business and the self-employed are other areas that are likely to draw attention’, she said.
A recent survey by the Association of Consulting Actuaries (ACA) found strong support among employers for reform of the pensions tax regime. However, ACA chair, Jenny Condron commented: ‘any further reduction in the overall tax relief given to encourage pension saving in this year’s Budget would in our view undermine the prime minister’s pledge that austerity was coming to an end’. While employers want simplification, this should be approached, ‘not in a rushed and rather disorganised way, as was the case in 2015, but carefully by way of a cool and calm “open” consultation and review post-Brexit’, Condron said.
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