2021 Autumn Budget Predictions
There is a lot of speculation around the upcoming Autumn Budget on 27th October, regarding how the government are going to raise the required funds needed to aid the ongoing recovery process and start to repay the government debt, which the Chancellor built up during the pandemic. Can the government keep running a deficit or will the Chancellor look to raise taxes?
After reading through the online articles and following discussions with those 'in the know', we have outlined the main issues that are needing to be addressed.
The current headline inflation figures are well above the Bank of England’s 2% target however it seems the Bank of England are reluctant to increase interest rates at the moment - which is good news. The cost of servicing the government debt mentioned above is very low and the Chancellor will probably want it to stay that way. However, we do predict that the Bank of England will need to increase interest rates at some point next year.
The Prime Minister announced the new Health and Social Care Levy on the 7th of September, which was important pre-budget tax news. Even though the Chancellor has previously said that the government needs to return our finances to balance at some point, we don’t expect any rises in direct taxes for this budget, these will probably be delayed till next year. However, he does have the option to freeze allowances and thresholds which will raise considerable revenue through fiscal drag without actually increasing taxes.
Many are predicting changes to Inheritance Tax and Capital Gains Tax (CGT) following the recent ‘simplification’ reviews by the Office of Tax Simplification. IHT is increasingly bringing in more tax for the Treasury and it would be quite straightforward for the Chancellor to ‘simplify’ many IHT rules that result in increasing future revenues, without directly changing headline tax rates. This is an easy win as most taxpayers would not be affected.
CGT is always under the spotlight and clients are always looking to ensure deals are completed ahead of the budget. Increases in capital gains tax don’t actually bring in a great deal of tax relative to the total tax collected, however again this is another easy win as the vast majority of taxpayers would not be affected by increases in capital gains tax. We don’t expect to see any immediate increases in capital gains tax however, announcing a tax rise for a future date could incentivise asset owners to sell up before then which would bring in a nice cash boost for the Treasury in the short term.
Will there be more taxes on businesses, or will the Chancellor look to incentive businesses to grow? Corporation tax is already set to rise in 2023 and various forms of pandemic support are being phased out in the coming months, so it doesn’t seem likely that the Chancellor would risk many more business tax increases.
The post-pandemic recovery will be high on the Chancellor’s agenda, but it is unlikely that there will be wholesale changes. The review and consultation into improving the UK’s R&D tax reliefs may result in announcements of enhancements to R&D reliefs which is good news, and he could also look to enhance the venture capital tax reliefs for investors (e.g. EIS and SEIS) to boost investment.
Job creation and skills shortages are expected to be high on his agenda, and schemes to boost youth employment (including an extension to the Kickstart scheme) are expected, even though the uptake to date has not been great. There are also likely to be announcements about training schemes to reduce skills gaps, with a reference to the recent HGV driver shortages.
The Express predicted in August that the Chancellor will target pensions in this budget to tackle the £40bn annual cost of these however we can’t see this happening. There may be some “technical” changes but no wholesale changes.
The current high rates of wage growth are pushing up private pensions faster than general inflation so again, we don’t expect the Chancellor to look at any changes to the tax reliefs for private pensions again.