Osborne admits the Summer budget is “unusual” but sees no point in hanging around following the Conservative’s General Election victory. He has declared that he “does not want to wait to deliver on the commitments” laid out in the Party’s election manifesto.
One of the main Conservative pledges was not to increase VAT, Income Tax or National Insurance Contributions during the next 5 year Parliament term so workers could keep more of their hard-earned cash. So it is likely that this so-called Tax Lock will be legislated in the Summer Budget.
With an aim of eradicating the public deficit by 2018-19 the Chancellor will no doubt have focus on ‘cash grabbing’ alongside the giving and public spending cuts.
The amount of pension tax relief available to the highest earners may be reduced to £10,000 from the present £40,000 a year either instantly or more likely from April 6 next year, and don’t rule out a rise in Capital Gains Tax as occurred in the post-election budget of 2010.
We will almost certainly see the introduction of the tax-free minimum wage law where the personal allowance will be set at a level that ensures that those working 30 hours a week on the national minimum wage are not subject to income tax.
Tax perks for landlords in the form of offsetting the cost of mortgage interest may also be axed.
Expect more action on curbing “aggressive” tax avoidance, especially the annual tax charges paid by non-doms and a continued cracking down on corporate tax evasion, such as failure to disclose offshore income, by imposing larger penalties.
But what about other areas of business and the curious case of productivity?
Despite a generally improving economy and unemployment, at the end of 2014, figures were still below pre-recession levels and it is an area Osborne is desperate to improve. More money for infrastructure and education is part of solving the puzzle but ensuring that businesses work better is another area of focus.
Expect the Chancellor to keep corporation tax levels at 20% and at least give an indication of what the new “significantly higher” permanent annual level of Annual Investment Allowance will be. We already know it is not going to return to its basic £25,000 from the current £500,000 level but more clarity will help businesses including SMEs invest. Also look for better access to research and development credits for SMEs.
The ICAEW has called on the Independent Office of Tax Simplification to be given the resources it needs to deliver on tax simplification such as the “complexity and length of the tax code”. It also wants the pension auto-enrolment process for SMEs to be simplified and explore a National Insurance Contribution exemption for apprentices of all ages.
Expect the Chancellor to talk about pension auto-enrolment given its high profile but those other wishes may have to wait.
Osborne may however also revisit a proposal to bring in a statutory tax exemption for trivial benefits in kind on spends up to £50. It had been expected to form part of the Finance Bill 2015 but was dropped pre-election. The exemption would have been for items such as tea and coffee or Christmas gifts.
Like Christmas, be prepared to expect the unexpected on Budget Day. We will be here after the speech to run through the announced changes and look at the ramifications for all.