Key points from the Autumn Statement:
- More funding for apprenticeships and 0.5% levy for employers with a payroll bill of over £3m
- Extension of Advance Learning Loans and no cuts to core adult skills participation budget
- A further 18% cuts to HMRC, which could affect service ahead of digitisation
- £800m set aside to fight avoidance and evasion
- Small Business Rate relief scheme extended for 1 year
- Innovate UK cash support protected
- Increase in Basic State Pension to £119.30 a week
- Devolution of powers to Local Authorities and 26 new or extended Enterprise Zones
- Budget surplus of 0.5% in 2019/20
- £12bn capital investment in infrastructure
- Tax credits and police cuts scrapped
- £10bn real increase in NHS Budget – but £22bn efficiency savings required
- Free childcare for parents working over 16 hours a week, with household incomes under £100k
In its Autumn Statement, the UK Government has announced that it is increasing funding for apprenticeships over the next four years. It is bringing in a new apprenticeship levy of 0.5% of an employer’s wage bill, with a £15,000 allowance for eligible companies. Employers with a wage bill of under £3m will be exempt from the levy.
Brian Palmer, AAT’s tax policy advisor and member of the Office for Tax Simplification, says that the levy is essentially a new employment tax: “ It’s like employers national insurance – it’s not national insurance, it’s a tax on employment. Businesses of that size will have to bear it. They won’t be happy, but they will pay it.”
Palmer believes that this could have a positive effect on the number of placements taken on by larger firms, the theory being that if employers are paying into it, they will probably want to get the most possible out of it. “They are businesses of the size at which they are likely to be using apprenticeships, and it will encourage more of that.”
This is good news for the accounting sector: many of the larger accountancy firms offer apprenticeship schemes, and it is likely that more accountancy apprenticeships will become available over the next four years.
The Government also announced the extension of 24+ Advanced learning Loans to students over the age of 19. Level 3 AAT students make the highest number of applications for this loan in England, so the extension of this scheme is welcome news.
HMRC: cuts ahead of digitisation
After years of staffing cuts since the merger of Inland Revenue and Customs and Excise in 2005, HMRC is facing a further 18% cost reduction commitments over the next four years. The argument is that the digitisation of HMRC will improve efficiencies, but systems are not in place to deliver all of HMRC’s services digitally, and they are not likely to be before the cuts take place.
The Chancellor has reiterated his commitment to clamping down on tax avoidance and evasion, pledging £800m to fight it. The concern is that those who are breaking the law are being prioritised at the expense of the majority that are compliant.
“There’s a question mark over how long they can maintain their service. At the moment, their customer phone handling is the worst that we’ve known in over a decade,” says Palmer.
As part of the digitisation of HMRC, the Chancellor announced that Capital Gains Tax will need to be settled within 30 days of the disposal of an asset. There are are some doubts as to how this will be achieved given the current status of HMRC digital services, but more detail is needed to determine what this will apply to.
In addition to reaffirming the roll out of Auto-enrolment across 2016, the Chancellor announced that basic state pension is set to increase to £119.30 per week. However, the age at which workers can claim state pension will rise “in line with life expectancy”. More detail is needed as to how this pension age will be determined, to understand its impact.
Devolution and enterprise zones
The announcement of 26 new or extended Enterprise Zones indicates that the Government’s plan to devolve Local Authorities and create ‘Northern Powerhouses’ is ploughing on ahead. The new powers seceded to Local Authorities include:
- A 2% precept on council tax for Local Authorities with a social care provision
- London-style elected mayors with similar powers
- Elected mayors will be able to raise business rates, as long as it is spent on supporting infrastructure and growing the local economy
- Councils keep receipts from assets that they sell.
“This is contrary to old style Conservative policy, which in the Thatcher years, was to make Local Authorities more accountable as they were quite divorced from central government,” says Palmer. “This almost makes you feel like we’re going back to that. They could do populous things in their areas that won’t align with national goals and objectives. However, there’s a real drive and determination to go down this devolution route.”
Housing market concerns
While the announcements of a new housebuilding programme are welcomed (though much discussed), the extension of Help to Buy raises some concerns about the continued artificial inflation of the market.
“If you make property more accessible, you aren’t going to make it more affordable,” says Palmer. “By making it more accessible, your drive prices up. It’s supply and demand, and if you free up demand, the supply will react. They are basically making it worse.”
A 3% increase in Stamp Duty Land Tax for buy-to-lets and second homes may go some way to dampening the market, but there is a danger for loopholes if it is introduced quickly.
“What is to stop someone from buying a flat, occupying it for six months and then renting it out afterwards? There’s a potential for loopholes that would usually be exposed during a consultation period.”
Although the Autumn Statement has much to welcome, it does raise many questions around the delivery of efficiency to government departments, and whether the Chancellor’s figures really add up.
For example, little was said about how the transfer to digital services for HMRC, the Courts system and other Government departments will actually be funded, or how another costly digital transfer fiasco, such as we’ve seen in the NHS and the DVLA in recent years. If not managed properly, this could cost a lot more in the short-term than it saves, and public services could suffer as cuts take place before digital services come online.
The Office of Budget Responsibility (OBR) forecasts seem to back up the Chancellor’s argument that the UK will be in surplus by 2020.
“The OBR has weighty responsibilities and be gung ho about things, in times in which you are coming out of recession, it’s always going to do the Chancellor favours,” says Palmer. “Their increase is always going to run behind the real increases, and that has been the case for the past 12 months or so.
“Do I think he can achieve his surplus target? No. He is relying a lot on the extra growth in the economy to fund this. He is taxing more as well. Most of his policies are actually most un-Conservative like.”