Tag: #tax

ICAEW chart of the week: Spring Budget 2020

13 March 2020: Forecast deficits increase with new spending announced in the Spring Budget, even before the impact of the coronavirus.

Forecast deficit before and after the Budget. 2020-21: £40bn to £55bn, 2021-22: £38bn to £67bn, 2022-23: £35bn to £61bn, 2023-24: £33bn to £60bn, 2024-25: £58bn.

13 March 2020.   Chart research by Martin Wheatcroft FCA, design by Sunday.   ©ICAEW 2020
Source: HM Treasury, ‘Spring Budget 2020’.   2020-21 excludes £12bn additional funding in response to the coronavirus.

The sheer scale of the Spring Budget 2020 spending announcements are difficult to comprehend, but the #icaewchartoftheweek makes an attempt by illustrating their effect on the fiscal deficit compared with the previous forecast.

The budgeted deficit in the coming financial year is expected to increase by £15bn to £55bn, even before taking account of the emergency £12bn to respond to the coronavirus that was decided after the forecasts were finalised. The deficit is also expected to be much greater than the previous forecast in each of the subsequent years, albeit there was no previous official forecast for 2024-25.

The increase in the deficit in 2020-21 of £15bn reflects higher spending of £19bn less £1bn in higher taxes and £3bn in other forecast revisions. The spending increases in the subsequent four years are even greater, with an extra £46bn on average a year before taking account of £7bn a year in higher taxes, £8bn a year from the indirect boost to the economy that the incremental spending and investment should provide, as well as an average of £3bn a year in other forecast revisions.

The big uncertainty is how much the UK and global economies will be affected by the coronavirus pandemic in addition to the existing economic headwinds and changes in the trading relationships with other countries in the EU and elsewhere in 2021. These risks could potentially reduce tax revenues significantly, leading to even greater fiscal deficits than those presented by the Chancellor on Wednesday.

For more on Budget 2020 visit ICAEW’s dedicated Budget Hub. For the latest news and advice for accountants on the Covid-19 outbreak visit ICAEW’s Coronavirus hub.

ICAEW chart of the week: Raising taxes is hard to do

6 March 2020: How can the Chancellor raise taxes in the forthcoming Spring Budget?

Tax receipts 2019-20 £751bn. Top six taxes £615bn (82%): income tax £196bn. VAT £155bn, NI £143bn, corporation tax £54bn, council tax £36bn, business rates £31bn.

Traditionally, the first Budget after an election raises taxes and this would be a logical step given plans to increase public spending and investment in infrastructure. But which taxes could the Chancellor increase?

As the #icaewchartoftheweek illustrates, the top six taxes generate over 80% of tax receipts. But the Conservative manifesto rules out increases in the headline rates of income tax, national insurance and VAT, while increasing the corporation tax rate would be difficult given the planned cut from 19% to 17% has already been suspended. Most local authorities are already planning to increase council taxes as much as they can while increasing business rates would be really difficult.

We await the Budget to see what the Chancellor decides to do. Some money could be generated from increasing or introducing smaller taxes but for larger sums, the main place to look would be from reforming tax reliefs and exemptions, such as the rumoured abolition of Entrepreneurs’ Relief. However, it would be a brave Chancellor that decided to go after larger sums, for example by extending the scope of VAT.

Of course, the Chancellor might decide to cut taxes instead, hoping to boost a sluggish economy and so generate greater sums through higher levels of growth. Either way, borrowing is likely to increase – fortunately at extremely low interest rates.

This chart was originally published by ICAEW.

ICAEW Fiscal Insight: General Election 2019

On 12 December 2019, voters have the opportunity to focus on the big challenges of sustainability, technology and the public finances as they elect a government for the next four and a half years. 

ICAEW have published a Fiscal Insight on the General Election 2019 manifesto proposals of the Conservatives, the Labour Party, the Liberal Democrats and the Green Party.

All the political parties are promising to increase taxes, public spending and investment. The Conservatives are promising the least, but they have deferred significant decisions. Other parties propose spending a lot more, with Labour planning to nationalise utilities. There are new fiscal rules, but questions about whether they would be adhered to.

This is in the context of public finances that are on a financially unsustainable path and – disappointingly – none of the parties set out a long-term fiscal strategy. There are significant risks around the achievability of all the party manifesto plans, with the projected deficit in 2023–24 of £62bn (Conservatives), £118bn (Labour), £76bn (Liberal Democrats) or £133bn (Greens).

Read the Fiscal Insight on the ICAEW website.