Ahead of the Autumn Budget the Chancellor has set the scene for potential further tax increases to put the country’s public finances on a “sustainable footing.”
Rishi Sunak told the Conservative Party Conference he wanted to lower taxes but funding the pandemic recovery “comes with a cost.”
Jim Meakin, Senior Tax Partner at Dumfries-based accountancy and business advisory firm Armstrong Watson, says Mr Sunak may see this as a last chance to increase taxes so he can cut them before the next election, despite his party’s November 2019 manifesto promise to freeze income tax, VAT and National Insurance for five years.
When it comes to looking at what tax the Chancellor will increase, Jim said the abolition of higher rate tax relief on pension contributions seems “irresistible” as does an increase in Capital Gains Tax and possibly Inheritance Tax.
Increases to Corporate Tax and National Insurance Contributions are already in the pipeline, while tax freezes announced in the Spring - the income tax personal allowances and the higher rate threshold will be frozen from April 2022 to April 2026 – limit The Chancellor’s options.
“These changes will bring many more people into income tax or the higher tax rate, so called fiscal drag,” said Jim.
“If wage inflation is returning this may also help the Chancellor by increasing the level of payroll taxes raised.
“With the Budget, on October 27, being held just a few days before the UK hosts the COP26 UN Climate Change Conference, the Chancellor can be expected to announce measures intended to prove the Government’s green credentials. These could include incentives or funding for climate favourable activities such as hydrogen cell technology or greater incentives for green research and development and possibly heavier taxes or levies on dirty or polluting activities or industries.”
He continued: “The tax take as a percentage of pump prices has actually fallen over the years and the current Government has not increased duties so it may be tempted to do so especially on diesel, though this may risk great unpopularity on the back of recent shortages.
“Finally, we watch with interest to see what specific measures the Chancellor might introduce to provide incentives and a favourable environment for the ‘high-wage, high-skill, high-productivity economy’ which is the Prime Minister’s vision, and for businesses in the regions what the Government will do help move the “levelling up” Agenda towards real results.”