Member Article

Budget 2015: PwC Newcastle predictions

With his last budget before May’s General Election, George Osborne will be looking to strike a difficult balance between championing the government’s commitment to fiscal responsibility on one hand, and enticing prospective voters with something extra in their pockets on the other.

The Budget presents a crucial final opportunity for the Chancellor to put forward his party’s ideas – but any announcements need to be agreed by the Coalition, which limits how far he might go. Battle ground topics like raising inheritance tax thresholds are unlikely to feature.

Decentralisation is likely to remain a major theme, and we may get some more detail on creating the Northern Powerhouse.

Expect noise also on supporting British innovation and helping UK firms break into fast growing markets like China, particularly following the Government’s recent GREAT festival of Creativity in Shanghai.

How many announcements can we expect in a Budget before an Election? Historically, pre-election Finance Bills have tended to be shorter, but this hasn’t been the case in recent years. Crucially though, this year the Bill must receive Royal Assent by 31 March, instead of the more usual July date. This leaves little or no time for parliamentary scrutiny.

Personal Tax

Both Osborne and his coalition partners may well consider going further on the central tax policy which has underpinned this government’s parliamentary term; increasing the personal allowance, perhaps up to £11,500.

Lee Stamp, personal tax director at PwC in Newcastle, 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 £2.5bn per £500 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% 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 the Liberal Democrats.”

Property

Following the 2014 Autumn Statement reform of Stamp Duty, there’s a chance the reforming zeal could extend to Council Tax. It’s a particularly sensitive area though – while the council tax bands are long due an update, the Government may be wary of another hit on expensive properties following the stamp duty changes.

Lee Stamp, personal tax dircetor at PwC in Newcastle, said:

“Council tax bands could be re-based and raised with very little extra cost to help create a fairer system for occupiers. However, anyone on the receiving end will be highly concerned that there could still be more hits to high end property to come depending who’s in power from June.”

Business

Businesses as ever will want consistency and clarity, although how much can realistically be offered this close to an election is questionable. On balance it seems unlikely that there will be any major changes in the business taxes arena, where the Chancellor strives for the right balance between promoting Britain as “open for business”, and being swift to tackle both tax evasion and tax avoidance.

David Hammal, international tax expert at PwC in Newcastle, 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.”

Small and medium sized businesses

There may be a temptation to offer smaller business owners a pre-election sweetener – perhaps through extension of the generally popular National Insurance Employment Allowance introduced in this parliament, which currently provides relief against the first £2,000 of employers National Insurance.

Richard Podd, tax director at PwC in Newcastle, added:

“Our research shows businesses large and small often would prioritise a more certain and stable tax system over reliefs - which sometimes don’t go far enough to make a real difference.”