QUESTION: The Chancellor, Jeremy Hunt, presents the government’s spring statement on Wednesday. What tax changes or announcements can we expect?
ANSWER: On Wednesday Jeremy Hunt will unveil his first Spring Budget, which comes on the back of higher interest rates, the tax rises announced last year and a wave of strike action across all areas of public services.
Compared with the flurry of tax increases announced in the 2022 Autumn Statement, the upcoming Budget should be a fairly sedate event but we shouldn't expect the policies announced then to be softened or reversed.
The slashing of the capital gains tax (CGT) and dividend allowance, which are due to fall from £12,300 to £6,000 and from £2,000 to £1,000 in April, will likely go ahead.
As planned, a long-expected rise to corporation tax to 25 per cent will go ahead from this April, up from the current level of 19 per cent, in line with the promises made by Rishi Sunak when he was the chancellor. Despite calls from the far-right of the Conservative party to reverse this, Mr Hunt is unlikely to hand out any further cuts to this tax to incentive businesses to the UK as it would be extremely expensive.
One potential change could be a replacement of the temporary 130 per cent “super-deduction” tax relief on investment that expires in April. Companies have asked for a “full-expensing” system, under which all qualifying investment is deducted from profits, which could help with growth.
Another option may be to introduce investment zones, in which corporation tax is zero. Although there has been a worldwide agreement to bring in a 15 per cent global minimum corporation tax rate into force in 2024, these zones could be used by any UK-based firm to lower their blended corporation tax rate as long as the total remained higher than 15 per cent. Introducing these zones into poorer regions of the country could also serve the Government’s “levelling up” agenda.
Some commentators are keen for Hunt to reconsider the child benefit system, which may also help with the government’s ‘back to work’ push. At the moment, if a parent earns more than £50,000, they have to pay back some of the benefit because of the ‘high income child benefit charge’. Any household with a parent earning more than £60,000 has to pay back all of the benefit.
As well as being a comparatively low threshold, it has remained unchanged for 10 years, which disadvantages families reliant on one earner. Two parents earning £49,000 each are not subject to the charge, whereas one earning £51,000 is. Other ways of expanding free childcare are also expected to be announced.
There is a focus on what the chancellor might do to entice retirees back to work and reduce economic inactivity. A possible solution is an increase to or reform of the lifetime allowance, which makes it less attractive for people with generous pension arrangements to continue working by capping the amount people can save into their pensions tax-free at £1,073,100.
Increasing the annual allowance people can contribute to their pensions, which is now set at £40,000, is also an option that the government has reportedly considered. The allowance gradually tapers down for very high earners, to a minimum of £4,000.
We could also hear an update on the government’s paper on increasing the state pension age. Initial proposals included speeding up the increase to 68 while eventually increasing it to 70.
There significant pressure on the chancellor to rise public sector salaries for nurses, teachers, civil servants, rail workers and others as they continue to strike over pay rises that do not match the rate of inflation.
Real pay in the public sector has fallen faster than private sector pay in the wake of the pandemic, while job vacancies are growing. At the moment, existing departmental budgets will allow for a 3.5pc public sector pay rise. Mr Hunt may go further and announce a 5 per cent increase. This would cost £4bn, according to Deutsche Bank.
Feargal McCormack (f.mccormack@fpmaab.com) is partner at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies
