Will the Budget include measures to end austerity?

Theresa May’s recent promise for an end of austerity may have been slightly overshadowed by her enjoyment of ‘Dancing Queen’, but it is a promise that captured the attention of the public eye.

Ahead of the Autumn Budget later this month, the timing of such a declaration has prompted a fresh wave of speculation concerning what Philip Hammond will have included.

George Bull, RSM senior tax partner, said: “Although Theresa May has confirmed that the age of austerity is coming to an end, the Budget presents a tough challenge for chancellor of the exchequer, Philip Hammond. Brexit-related fiscal uncertainty gives him very little wriggle-room at a time when he must also meet the Conservative party manifesto commitment to eliminate the deficit by the mid-2020’s.”

There is also pressure for the chancellor to produce the promised extra £20bn for the NHS. As well as some of the money being sourced from general taxation, likely drastic changes will need to be made in order to accommodate for this.

Bull pointed out that “any thoughts that this might be met by an increase in fuel duty have been dashed by the Prime Minister’s confirmation that fuel duty rates will remain unchanged.”

The question of where this extra £20bn will come from remains open and unanswered, meaning that it will almost certainly be referred to on Monday 29 October.

Of course, with Brexit-related uncertainty limiting the amount of fiscal changes that Hammond can make, increasing expenditure to the point of funding the NHS and satisfying the public will prove to be incredibly difficult.

In a recent RSM blog post, George Bull considered the top tax topics for the Autumn Budget. A particularly important area that has received less publicity focuses around pension contributions. Bull emphasised how “scarcely a Budget goes by without some changes to the pensions tax regime and this year’s looks like being no exception.

“With annual contribution and lifetime allowance limits having been cut dramatically over the years, sentiment around the fact that high-earners seem to benefit most from the pensions tax reliefs is hardening.

“It would not be surprising to see tax relief for pension contributions given only at the basic rate of income tax.” As a less popular measure, it is not surprising that the Prime Minister is not as inclined to bring attention to it.

In response to Accountancy Age, Bull claimed: “Tax increases, including an internet sales tax, seem inevitable. Yet the Prime Minister’s emphasis on giving hope to hardworking families suggests that any increases will be borne by the few, not the many. Whatever headline-grabbing announcements are made, it is vital that these translate into clear, workable legislation.”

With the relatively recent introduction of ‘Google tax’ and the debated ‘Amazon tax’ measure, it seems likely that internet sales tax could also be introduced as a potential measure.

As Melissa Geiger from KPMG recently highlighted, it is essential that UK businesses continue to be presented as attractive to investors’, so they do not risk falling into the shadow of Brexit. Overly harsh taxation will not allow for this.

George Bull concluded: “In short, the occupant of Number 10 has made the Budget much harder for the occupant of Number 11 to deliver.”

The end of austerity may have been promised, but the Autumn Budget will give us a clearer indication as to how – or if – this will be achieved.