Less of a Statement, more of a Budget
The Autumn Statement was delivered by the Chancellor on 5 December. In theory, on becoming Chancellor Mr Osborne abandoned the Pre-Budget Reports that were Gordon Brown’s pre-Christmas showpiece, in place of a basic economic statement (as required by parliamentary statute). In practice, what the Chancellor delivered on this occasion was nearer to a three-year Budget, taking him past the date of the next election.
Quite why Mr Osborne felt the need to tell us about tax numbers for 2015/16 was not made clear. However, it is likely to have everything to do with the projections of government finances out to 2017/18 prepared by the Office for Budget Responsibility (OBR). The Chancellor stopped the OBR from using the assumption that from 2014/15 inflation-linking would apply to tax allowances and benefits by stating what (lower) increases would be imposed. As a result, the substantial quantity of red ink in the forecasts was marginally reduced.
In the run up to the Autumn Statement, no major income tax announcements were expected, not least because the March Budget had already set out the personal allowance and higher rate tax threshold for the 2013/14 tax year. However, the Treasury’s leak-control system proved to be better than it was in spring, and the Chancellor was able to reveal three surprises:
- For next tax year the personal allowance will rise to £9,440, £235 more than previously announced. This figure appears to have been chosen so that RPI-linked increases in 2014 and 2015 will bring the allowance up to the coalition’s £10,000 target just before the election.
Alongside the increase in the personal allowance was an equal decrease in the size of the basic rate tax band, leaving the 2013/14 starting point for higher rate tax unchanged from what was announced in March (and £1,025 lower than in the current tax year).
For both 2014/15 and 2015/16 the higher rate threshold will rise by 1% a year against corresponding RPI inflation projections of 3.1% and 2.7%.
The end result of Mr Osborne’s tweaking, according to the Institute for Fiscal Studies, is that in 2015/16 there will be over five million higher rate taxpayers. Gone are the days when higher rate taxpayers were a rare breed – or, indeed, a wealthy one.
The Financial Services Authority does not regulate tax advice.
7th December 2012