Ruth Dooley, Tax Partner at Hazlewoods Business Advisers and Chartered Accountants looks at outcomes from the latest autumn budget.
It is amazing how much the Chancellor can raise for the Exchequer by doing nothing… with tax limits.
The Budget has shown us just how much Rishi will raise by freezing most tax bands for the next five years. By fixing the personal allowance (the amount of income a person can have each year before they start to pay tax) at £12,570 and by setting the level before paying tax at 40% at £50,270, it is estimated that he will raise £47bn, as compared to the position had these bands risen with inflation in the next five years.
He has also frozen the Inheritance Tax nil rate band at £325,000 per person. It is estimated by the Office of Budget Responsibility (OBR) that this will almost double the number of estates paying IHT from 22,800 in 2019/20 to 41,400 in 2026/27. No wonder these are known as ‘stealth taxes’.
Then there were the real tax rises that had already been announced. The Health and Social Care Levy of an additional 1.25% on national insurance and dividends, which will hit the self-employed and retirees as well as earners. This is forecast to raise £85bn in the next five years according to the Budget figures. Corporation taxes rises are also in the pipeline.
In addition to this, the Chancellor had better news than expected about the economy. Last March the OBR had been forecasting growth of 4% for the current year, but this was revised to 6%. It had also been anticipated that the pandemic would set back the UK economy by 3% but this was revised to 2%; unemployment figures were better than expected; borrowing was down on forecast. All music to the Chancellor’s ears or wallet.
On the other hand, inflation is expected to be at 4% next year and forecasters are suggesting that base rates will rise from 0.1% to either 0.5% or 0.75% early next year. Mortgage rates have already been rising as a result. Someone signing up for a mortgage today will, on average, be paying £400 more annually than they would have done for the same mortgage a month ago.
Despite these indications that some caution might be needed, we still had a giveaway Budget. A £150bn leap in Government spending. Rishi appeared to greatly enjoy himself as he announced funding for the NHS, schools, the justice system as well as skills and innovation.
Locally, the great news was that the three Gloucester and Forest of Dean Levelling Up bids were all successful, bringing a total of £52.8m of new investment into Gloucestershire.
This funding will support the University of Gloucestershire as it converts the former Debenhams into a Heath and Education Campus. There was also funding for The Forge, a new tech incubator centre for SMEs, which is part of the Forum development project and for the redevelopment of the Fleece Hotel. The County Council also won £12.8 million of funding for significant transport improvements, including what will ultimately be a cycle ‘spine’ through our county from Stroud to Bishops Cleeve and connecting Cheltenham and Gloucester.
In the Forest of Dean, there will be a new leisure centre at Five Acres, a University, a Careers and Enterprise Learning Centre at the Hartpury campus and regeneration work in Cinderford town centre.
At a time of the COP26 conference it is also good to hear that all of these projects are designed with carbon reduction in mind, to help to tackle the climate emergency – surely, what now must become the top priority for governments, businesses and all of us.
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