Summer Statement: five tax-grab options for chancellor’s Autumn Budget

Chancellor Rishi Sunak announced a raft of welcome measures, but made it clear that the Autumn Budget will focus on steps to rebuild the economy. What might a rebuilding tax grab involve?

In his job-creating Summer Statement to help the UK economy through a 25% GDP contraction, chancellor Rishi Sunak announced welcome measures to boost new jobs for younger people through the Kickstart Scheme, a “green jobs” initiative, a generous stamp duty holiday to get the housing market moving again, and support for the hospitality industry through VAT cuts and the “eat out to help out” scheme.

- More Summer Statement articles:
- Homeowners to receive £5,000 vouchers to boost energy efficiency
- Stamp duty cut with immediate effect
- Chancellor’s three-point strategy to protect and create jobs
- Sunak’s ‘eat out to help out’ scheme to kickstart hospitality

However, he kept quiet on several other fronts where he might have taken further action, either to help employers further or with the aim of starting to restock the public coffers at this stage. Instead, he made it clear that the Autumn Budget will focus on measures to rebuild the economy but also “get the public finances back on a sustainable footing”.

But in reality, as Hinesh Patel, portfolio manager at Quilter Investors, points out: “If Covid-19 cases begin to pick up again and stall the nascent recovery, [any tax grab] is likely to be pushed to the next fiscal year as spending and stimulus will remain key.”

Patel suggests that areas particularly likely to see further help in the shape of fiscal stimulus include homebuilding, industrials and green sectors. “The cut in VAT for the hospitality and tourism industries were deeper than initially briefed, and [it] provides a template for other sectors should more support be needed in the quarters ahead,” he adds.

Looking ahead to autumn, what might a rebuilding tax grab involve?

1) State pension triple lock

There has been much speculation that the current system, whereby state pensions rise each year by the greatest of inflation, earnings or 2.5%, is untenable in a post-Covid world.

- Why lockdown lifting could force government’s hand to reform state pension triple lock

Tom Selby, senior analyst at AJ Bell, comments: “Based on the Office for Budget Responsibility’s April forecast for the economy over the next two years, retaining the triple lock would see the value of the state pension rise by over 21% by 2022 and cost the Exchequer billions of pounds. Such a rise in incomes for older people would be hard to justify in a world where younger workers are facing job losses and severe pay cuts.”

The Social Market Foundation think tank estimates that removal of the 2.5% guarantee could contribute to £20 billion worth of savings over the next five years.

- Scrap state pension triple lock to deal with deficit, says think tank

2) Pension tax relief

At present, pension savings attract full tax relief, so a higher-rate taxpayer receives 40% relief on net contributions. The discussion on the challenge of providing such generous tax relief in the face of the UK’s ageing population is a long-running one, with one often-mooted suggestion being to move to a flat rate of pension tax relief, set maybe at 25% or 30%.

- Momentum building for overhaul of pension tax relief

3) Wealth tax

One way to target the relatively well-off and avoid further strain on the young, who don’t tend to have much wealth, might be to introduce a wealth tax levied on assets rather than income.

- Wealth tax to fund Covid recovery could hit Isas and second homes

4) National insurance on pension incomes

At present, pensions are taxed in the same way as other income but no national insurance is levied on them. It’s possible this could change, although as Selby observes, “this would be hugely unpopular among older voters”.

Selby adds: “In reality, there are few easy answers or palatable options for a chancellor attempting to steer the country back from the brink of what is expected to be the worst recession since records began.”

5) National insurance on retirees’ earnings

There are more than a million workers older than state pension age, who do not currently pay national insurance contributions; as that number rises, Steve Webb of LCP believes “it seems highly likely we will see NICs levied on earnings [for the over-65s]”.