27th October: the real budget
The Budget cycle has been thoroughly disrupted over the past five years. It all started when Phillip Hammond (two Chancellors ago) announced in November 2016 that he would be reverting to an Autumn Budget from the following year, but would nevertheless have a Spring 2017 Budget. After two Budgets in 2017, there was one Autumn Budget in 2018, but then 2019 had no Budgets because of the impending election. 2020 started with a Spring Budget to make up for the loss of 2019, but then morphed into a series of pandemic-related quasi-Budget announcements by the Chancellor. Covid-19 also forced the Chancellor to abandon an Autumn 2020 Budget in favour of a Spring 2021 Budget, when it was hoped the economic outlook would be clearer.
Where are we now?
A week after the House of Commons had risen for its summer recess in July, the Chancellor announced that he had asked the Office for Budget Responsibility (OBR) to prepare an economic and fiscal outlook (EFO) to be presented on 27 October. Normally EFOs appear alongside Budgets or formal statements, but, at that time, Mr Sunak made no mention of either.
However, alongside the raft of social care announcements on 7 September, the Chancellor confirmed 27 October as the Autumn Budget date.
Plenty to watch out for
Despite the £12 billion worth of tax raising revealed on 7 September, the Chancellor still has a challenging to do list:
Government debt: In 2020/21, the Government borrowed about £300bn, over five times the figure for the previous year. In the first five months of this financial year another £93.8bn has been added to the debt pile. The occupant of 11 Downing Street will not want to see any of his neighbour’s spending plans unmatched by tax increases.
Inheritance tax: In response to a request from Philip Hammond, the OTS produced two reports on simplifying inheritance tax (IHT), the last of which emerged just over two years ago. To date the Chancellor has done little more in response than freeze the nil rate band until 2026 and promise to reduce IHT paperwork for most estates.
Capital gains tax: IHT is not the only capital tax that has two OTS reports sitting on Mr Sunak’s desk. The same is true of capital gains tax (CGT) – and these were reports which he had personally commissioned. CGT is not a tax for which there was a manifesto promise of no rate changes, so the Treasury views it as a promising area for raising more revenue. For example, the OTS suggested reducing the annual exemption from £12,300 to £2,000-£4,000 and aligning CGT rates (maximum generally 20%) with income tax rates (maximum 45% in England).
The Chancellor has no money for giveaways, and, even before the increases to NICs and dividend tax, he was already quietly increasing taxes by freezing allowances and tax bands.
Your tax bill is not going to be reduced by Mr Sunak; he needs all the revenue he can find. That makes your own personal tax planning all the more important. With capital tax reforms likely at some point, now is a good time to review those plans.