Insights

The Chancellor will reveal his autumn spending review on 27 October and some of the expected announcements are being leaked to the media. Overall, rather than there being many obvious tax increases, like the earlier rise to corporation tax, this Budget is more likely to feature ‘technical increases’. These will serve to add complexity and quietly reduce tax reliefs without needing to make overt increases. After reviewing all the announcements and news coverage over the past few weeks, these are the most probable outcomes.

What can we expect in Budget 2021?

Increased minimum wages

The minimum wage is rising to £8.91 in April 2022, for taxpayers over 23s and the age threshold has lowered - from 25 and over to 23 and over. Under the new rules, people aged between 21 to 22 will begin to receive £8.36 and workers aged between 18 to 20 will get £6.56 – up from £6.45. Under 18s will get £4.62 – a rise from £4.55 – and apprentices will receive £4.30, up from £4.15. There could be additional changes to wages announced in the Autumn Budget as the furlough scheme is now finished. Some campaigners are pressing for a £12 an hour minimum wage level to be introduced.

Pay freezes finish

Rishi Sunak is expected to end the one-year freeze on public sector pay for civil servants, teachers, police, firefighters, the armed forces and council staff. This which was introduced at the start of the Covid pandemic. It did not include front-line NHS staff who received a 3% pay rise which was backdated to April 2021.

Tax changes coming up

It is very unlikely that there will be any tax cuts whatsoever in the Budget; taxes are likely to increase further - beyond what was already announced in the Spring Budget 2021.

So far, the following taxes have been increased with new rates coming in April 2022:

• Income tax thresholds have been frozen and there will be a 1.25% increase to NICs (the health and social care levy). Freezing people’s personal tax allowances from April 2022 will raise considerable revenue for the Treasury, because rates of inflation are rising which creates ‘fiscal drag’ as real incomes lag behind.
• Corporation tax is increasing to 25% from April 2023 (from the 19% rate currently), which will impact all companies with profits greater than £50,000.
• Capital gains tax increases have been expected for some time, to bring them into line with income tax rates. It may be that this coming Budget will be the event when this increase finally takes place, perhaps in the form of technical changes that cut back CGT reliefs rather than a straight headline rate increase. Alternatively, rates could be increasing from April 2023, giving investors a final chance to dispose of their affected assets in the short term.
• Inheritance tax rates are not expected to change in the short to medium term, but there is the possibility that pension lump sums could be brought within the inheritance tax net.

Net Zero Targets

The Treasury has not yet published its review of how the UK economy is expected to achieve net zero emissions by 2050. The targets have already been set to cut CO2 emissions by 78% by 2035 and to reach the net zero goal by 2050.

The highly controversial ‘Heating and Boiler Strategy’, aimed at making electricity cheaper and gas more expensive over the course of the next 15 years will likely be unveiled, together with details of clean energy subsidies.

Electric car subsidies are likely to be cut to help save money, including the current ‘plug-in’ grant which is worth up to £2,500 towards the cost of households installing a home-based charging station.

Student Loans

The repayment threshold at which student loans start to be repaid may be lowered. Currently, the threshold is 9% of earnings once a taxpayer begins to earn above £27,295 per year. This repayment rate continues until either the loan is fully repaid, or 30 years after graduating. To help increase Treasury revenues, the threshold may be lowered to £23,000, with the repayment timeframe increasing to 40 years. This is expected to cost students around £400 more each year.

Enhancements to existing business tax relief schemes

A review and consultation into improving R&D tax credits has been ongoing and we may hear about the existing scheme being enhanced to encourage greater business investment and innovation.

The existing VCT and EIS schemes may also be enhanced to encourage long term investment into small business.

We will be monitoring the Budget speech next week and sharing our observations, keep an eye out for the updates.

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