Another five years of Conservative rule will undoubtedly mean five more years of austerity, so where will the chancellor look to raise tax revenues?
Prime minister David Cameron has already said George Osborne will remain as chancellor for another five years. Osborne is keen to cut spending in order to meet his austerity targets but George Bull, senior tax partner at accountants Baker Tilly, believes spending cuts will not be enough and ‘tax rises seem inevitable’.
The Conservatives have made a number of promises that helped win them a majority, including ‘padlocking the levers of the Treasury machine’, according to Bull, but stating there will no increases in VAT rates, income tax or national insurance. And not forgetting the increase in IHT exemption for homes up to £1 million.
The UK is also expected to retain the most business-friendly tax regime in the G20, meaning the UK will retain its 20% corporation tax rate.
These are the areas that Osborne is likely to consider for tax-raising:
- Clampdown on evasion and avoidance: ‘estimates generally exceed reality,’ said Bull, adding that it is ‘not a bottomless pot into which HMRC can dip its spoon’. A 100% successful attack on evasion and avoidance would be unlikely to raise more than £20 billion, said Bull but ‘the Exchequer has yet to fully benefit from all the measures introduced during the last parliament to defeat tax evasion and avoidance’.
- Tougher line on profit-shifting: either through a ‘Google tax’ or signing up to OECD initiatives.
- Increasing capital gains tax: ‘CGT is not protected so if it went up it would be expected that business owners are protected,’ said Bull. ‘Perhaps a return to a capped taper relief system – ie. normal income tax rates for gains on investments tapered back to 10% for £10 million of business gains.’
- Restricting major tax reliefs on pensions and main residence exemptions: Bull calls this ‘plucking the non-dom goose’ by minimising the reliefs that can be claimed on assets and increasing the non-dom annual charge.
- Boost growth: boosting growth increases tax revenue and Bull said the chancellor could do ‘everything possible to boost growth and improve productivity, so increasing the amount of corporate profits and personal incomes which are taxable’. He added that VAT yields would rise as spending rises on the back of higher incomes.
- Pension freedom: more people accessing more of their pensions as lump sums is set to boost to the coffers. People are expected to grab the cash regardless of the income tax charge.
- Taxing vices: it may not be popular but bumping up tax on tobacco, alcohol and betting duties may be increased by a more confidence majority parliament.
- Scrapping tax returns: ‘Bringing forward the tax payment date for individuals from 31 January – move it forward three months…this could be achieved if the government does away with tax returns as proposed in the last Budget,’ said Bull.
- Top rate of income tax: ‘No increase to the top rate of tax, but we will see the £12,500 personal allowance and adjustment to the higher rate threshold which will cost money.’
10. Council tax band review: the Tories have ruled out a mansion tax but there could be some tinkering. ‘A review of council tax bands to collect more tax on higher value properties. Not a mansion tax but this old system and its bandings are sure to be reviewed at some point,’ said Bull.