PwC Makes UK Budget Predictions
PwC expects that UK Chancellor George Osborne’s 2015 Budget will seek to strike a balance between ensuring fiscal responsibility and enticing support from prospective voters.
On March 18, Osborne will deliver the Coalition Government’s final Budget ahead of the May 7 general election. PwC pointed out that, crucially, the resultant Finance Bill will need to receive Royal Assent by March 31, instead of the usual July date.
PwC believes that Osborne could look to again increase the personal income tax allowance, possibly to GBP11,500 (USD17,000). Sian Steele, Tax Partner at the professional services firm, said: “Raising the personal allowance is a tried and tested way of offering a little extra something in the pay packets of the full-time working population, although at an annual cost to the Treasury of GBP2.5bn per GBP500 increase, such offers don’t come cheap. If he’s looking for an alternative approach, the Chancellor might instead raise the threshold at which the 40 percent rate kicks in to appease some of the middle earners who have been dragged into the higher rate band as the threshold has dropped in recent years, although this approach would likely meet resistance from [its coalition partner] the Liberal Democrats.”
Another option open to Osborne, according to Andrew Sentance, a senior economic adviser at PwC, is an increase in the level at which National Insurance (NI) starts. An increase of GBP2 a week or GBP100 a year, for both employees and employers, would cost in the region of GBP300m a year. By contrast, raising the threshold by GBP1,000 for both employees and employers would cost between GBP5bn and GBP6bn.
Sentance said one way the Chancellor could recoup these costs would be to raise the upper limit of NI at the same time as raising the lower limit. Raising the upper limit by GBP10 a week or GBP500 a year would recoup about as much money as raising the lower limit by GBP2 a week for employees. There is no upper limit for employer NI.
Alternatively, the Chancellor could hike the employee NI rate beyond the upper limit, which is currently two percent. A further one percent rate rise would bring in GBP850m a year, or up to GBP1bn if it additionally applied to the self-employed.
According to PwC, it is unlikely that there will be any major changes in the business taxes arena on Wednesday. The Government could seek to encourage investment in the North Sea by lowering the overall tax rate for oil companies, currently at between 60 percent and 80 percent. It has already announced a new investment allowance.
PwC anticipates that there will be confirmation of the wider measures announced in the 2014 Autumn Statement, such as the proposed Diverted Profits Tax (DPT), which is due to enter into force on April 1, 2015. Stella Amiss, International Tax Partner at PwC, said: “Businesses have had very little time to work through these complex and subjective rules and, with implementation now just around the corner, time is not on their side.”
PwC said that further pre-emptive international tax measures, ahead of the conclusion of the Organisation for Economic Cooperation and Development’s (OECD’s) base erosion and profit shifting (BEPS) program, cannot be ruled out. Osborne could introduce new measures to support business transparency on tax, including an extension of country-by-country reporting requirements beyond banks and the extractive industries, PwC said.
