Five (other) possible Budget announcements

The Chancellor has announced the Autumn Budget will take place on 26 November, so triggering the start of the wild speculation on possible tax changes.

After a turbulent first year, the Government’s focus will be on stabilising an economy affected by setbacks and U-turns, as its approval ratings fall. But the current reading of the economy doesn’t make for good news with weak growth and fast-rising long-term borrowing.

After boxing itself into a corner at the election by promising not to raise rates of income tax, National Insurance or VAT for ‘working people’, it has few options to increase taxation. But here are five possibilities.

• Frozen thresholds. Currently tax thresholds are frozen until 2028, but the Chancellor could extend the freeze to make her sums add up. However, last year she declared she wouldn’t freeze personal income tax and National Insurance thresholds because it would hurt working people, meaning an uncomfortable reversal of policy.
• A ‘mansion tax’. It’s been rumoured that the Chancellor is contemplating an annual property tax for properties over £500,000 which would ultimately replace stamp duty. However, details are thin on the ground, and this has the definite whiff of the Government ‘kite-flying’ to judge how unpopular a proposal it could be.
• Capital gains tax. Having pushed up rates in the last Budget, the Chancellor might have another attack on asset gains to drive some much-needed revenue. Equalising CGT rates with income tax is one theory that has done the rounds. Any change may need to be implemented straightaway to avoid people selling assets in the run up to April next year.
• National Insurance on retirement income. It’s hard to work out if imposing National Insurance contributions on retirement income would mean breaking Rachel Reeves’s promise not to increase taxes for ‘working people’. But it would certainly be unpopular, and it’s doubtful if the Government can afford to further enrage pensioners, especially following on so closely from the winter fuel payment debacle.
• Inheritance tax. Having already had a go at farmers and pensions, the Chancellor may think about making further changes to IHT. Although it wouldn’t raise revenue quickly, reducing allowance thresholds or making changes to the gift allowances, including extending the seven-year rule, could be viewed as an option.

The eagle-eyed amongst you will realise I have left out changes to pensions tax relief – both reducing tax-free cash amounts or changing tax relief on contributions.

So much has already – and will continue to – be written about these possibilities. But neither come without their challenges: in particular they could create great unrest within the public sector, who rightly treasure their gold-plated pension schemes and would take very unkindly to any proposals for change, possibly threatening strike action.

These rumours create uncertainty for your clients’ long-term planning and severely damage people’s overall confidence in retirement saving. AJ Bell has called for the Government to commit to a ‘pensions tax lock’ – a pledge not to change pensions tax relief or tax-free cash – at least for the rest of this parliament.

But, in the meantime, your clients will be looking to you to add some common sense to the debate and help them in making sensible decisions rather than reacting to speculation.