The economic future is bleak, but the chancellor wants to stick to his deficit reduction plan - so something has to give. Is he planning a VAT hike to 22.5 per cent? A stamp duty rise on luxury homes?
The UK will have a difficult time hitting its deficit reduction target in 2012-2013, with higher than expected public sector borrowing of £8.6bn in October. Economists predict more pain but George Osborne has already hinted there may be a few surprises when he speaks at 12.30pm.
"The situation under Labour where top people in the City were paying lower tax rates than their cleaners has been ended. And we are hunting down those who evade tax wherever they try to hide," Mr Osborne said on Sunday, writing in the Sun.
"But we understand that fairness isn't just about taxing the rich. It's also about ending the something for nothing benefits culture."
The chancellor was short on specifics. But if speculation over the past few days turns out to be correct, he will unveil a wealth tax on the rich and a revised welfare cuts package in a mini-budget designed to hit both ends of the pay scale.
There may be a stamp duty rises on sales of luxury homes in conjunction with a squeeze on benefits. The chancellor may also give a £1bn boost to small British exporters, the Sun reported citing unnamed sources.
The Sunday Times said the chancellor would cut the £50,000 annual tax relief cap on pensions to as little as £30,000 today. That change would reportedly bring in up to £1.8bn a year.
Delay the targets
"My predictions would be: delay the targets, have smallish increases in public capital spending, a small reduction in taxes and possibly reduce the amount of money that can be put in a pension scheme that can escape tax," Richard Jackson, an economics professor at the London School of Economics, said in an interview with Channel 4 News.
Others predicted the introduction of levies on homes valued at £2m or more, an annual charge as high as £140,000 on properties owned by offshore companies and capital gains tax on the sale of luxury homes by non-residents who aren't naturalised.
Among the many possible announcements on 5 December -
- Amending the timetable for deficit reduction targets: Mr Osborne has room to manoeuvre as the IMF has said that increased borrowing should be "tolerated" instead of tackled with more tax rises or spending cuts. He hinted at the weekend that it would take longer to cut the deficit but did not go into detail.
- Further measures on corporate tax avoidance: Expect the chancellor to announce extra investment in the section of HMRC that tackles tax avoidance by multinational companies.
"In the short run the economy probably needs less austerity rather than, more and the best approach in the autumn statement is for the chancellor to take the weakening in borrowing on the chin and emphasise that medium-term spending restraint appears to be working," David Tinsley, UK economist at BNP Paribas, said.
- £35bn in interest generated by quantitative easing used to reduce public borrowing and debt: the move would improve public finances short-term, but leaves taxpayers with a bill later. Mr Osborne may consider that too risky.
- Enact £1.5bn in cuts to hospitals, roads and schools built under the private finance initiative, as stated by the Treasury 18 months ago.
- Cap public sector pay for five years: this, too, is tricky but extending the pay cap until 2017 might avoid cuts to services including schools and hospitals.
- Fast-track "shares for rights" scheme: the chancellor has already outlined plans to give employees tax-free shares in the companies employing them in return for surrendering workplace rights. Expect more details today as Mr Osborne's promotes his "owner-employee" contract.
- New property taxes: there could be levies on homes valued at £2m or more, an annual charge as high as £140,000 on properties owned by offshore companies, and capital gains tax on the sale of luxury homes by non-residents who are not naturalised.
- A £1bn allowance: this would let businesses write off the entire cost of qualifying investments against their corporation tax bills.
- £1bn business bank: Vince Cable announced plans earlier this year and Mr Osborne will likely provide more details in his statement.
- Scrapping the planned 3p fuel duty rise: the rise is due to come into effect in January. Will the chancellor keep it or get rid of it?
"Coupled with the government's funding for lending scheme, announced earlier this year, aimed at boosting lending to non-financial corporates and households, the chancellor should be in a position to argue... he has significantly ramped-up efforts to boost business lending," Philip Shaw, an economist at Investec, said.
100/1 Long shot
- Reviewing the immigration targets: Professor Jackson believes the government hopes to review immigration targets which have cost the UK money. Companies are having trouble hiring qualified foreign workers, and students and workers complain they cannot get into the UK to spend money.
- VAT increase: with VAT having risen from 17.5 per cent to 20 per cent last year, Mr Osborne could raise the tax to a further 22.5 per cent - but the good news is that PricewaterhouseCoopers does not think it is likely.
"Something's got to give. The government settle in to total disaster without doing something about that," Professor Jackson told Channel 4 News.
The Office for Budget Responsibility is to release its forecasts on UK economic growth in 2013 and beyond just ahead of the chancellor's statement, and the smart bet is that the OBR will cut its forecasts for UK economic growth in 2013.
Once that is done, the chancellor will uses the autumn statement to update MPs on the state of the economy and the public finances. Whether you are seated in parliament or at home, expect an uncomfortable stinging sensation at 12.30pm.
21 September 2011
07 September 2011
20 October 2010