TAX, BORROW OR SPEND?
We’re fast approaching the Autumn Budget, so let’s consider some possible changes coming up. To start, let’s look at the maths:
With respect to public sector borrowing, the amount of money the UK Government has to borrow annually to make up for a shortfall in its budget, has fallen to its lowest level since 2007 and is now 25% less than a year ago.
The decline in borrowing has been driven by two things: a 3% increase to £169.4bn in the amount of money the UK Government raised from taxes and other revenue-generating means; and a 1% fall in spending, to £184.2bn.
The UK Government tends to spend just below two-thirds of its budget on central government departments, such as health, education and defence; around one-third on social benefits, such as pensions, unemployment payments, child benefit and maternity pay; and the rest goes on capital investment and interest on debt.
Regarding the national debt, which is the total amount of money the nation owes at any point in time, the trend looks a little less troubling too. The debt pile at the end of June stood at £1.8 trillion* (excluding unfunded public sector pension commitments), equating to 85.2% of gross domestic product (GDP). While this is £33bn higher than it was at the same time last year, the debt has shrunk as a ratio of GDP, which is the more conventional and important measure.
This year, the Office of Budget Responsibility (OBR) expects the public sector to borrow £37.1bn. This would account for just one-quarter of what it borrowed in the financial year 2009/2010, at the peak of the financial crisis. It would also mark an improvement on the £39.4bn borrowed in the last financial year.
Given that borrowing is falling faster than the OBR expected, this too indicates that the Chancellor could choose to change course in the Autumn Budget and give the economy a break from further spending cuts in 2019.
What do we know already?
Phillip Hammond’s Mansion House speech in June acknowledged the £20bn extra funding for the NHS as announced by Theresa May to be “partly funded by lower contributions due to Brussels” but “taxpayers will have to contribute a bit more”, implying further tax increases.
What about the ‘B’ word?
How much savings Brexit will deliver, is as difficult to speculate on as the nature of our exit itself. However, the most likely short-term impact is the absence of Treasury staff to focus on the implementation of complex change of anything that isn’t related to Brexit itself.
What might be on the agenda?
Pensions Tax Relief
The amount and equality of pensions tax relief appears to remain in sharp focus. A recent Treasury Select Committee report on savings, income and debt, calling for a lower annual allowance and scrapping the lifetime allowance, would no doubt be more welcome.
IHT and Taxation of Savings Income
The Office of Tax Simplification has been busy considering recommendations to the Chancellor. These relate to a major review of inheritance tax that remains underway, and a paper on possible routes towards the simplification of taxation regarding savings income.
On balance, it is difficult to envisage any significant policy shift this Autumn, though given the complexity of our tax legislation, even the smallest change can have unintended consequences.
* How do you visualise a Trillion ? Try this: 1 million seconds is about 11.5 days, 1 billion seconds is about 32 years while a trillion seconds is equal to 32,000 years.
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