Following the confirmation by Chancellor of the Exchequer, George Osborne, that there will be no immediate 'Emergency Budget' following the referendum result, I’ve been looking at what has been said, and what has not, to develop some sort of idea as to short-term changes in the UK tax system.
Let’s start by putting this in context. The best starting point is HMRC’s own record of total HMRC receipts, and receipts as a percentage of GDP, for the years 1980/81 to 2015/16:
Crown copyright, used with full acknowledgement from HMRC Tax and NICS receipts.
It’s interesting to see from this that HMRC receipts fell almost immediately the Great Financial Crisis began and, while on their way to doing so, have still not returned to their previous trend line.
More significantly, and unexpectedly perhaps, HMRC receipts as a percentage of gross domestic product (GDP) dropped dramatically in 2009/10, peaked in 2011/12 and, after a further drop, are increasing again. Let’s keep that in mind.
In his 28 June 2016 statement, George Osborne made clear that – while remaining committed to fiscal responsibility as a crucial requirement of stability, in the autumn the Office for Budget Responsibility will give an independent assessment of the impact of the referendum vote on public finances. The government of the day will then respond accordingly, with tax and other measures to be announced in the Autumn Statement.
Significantly, the Chancellor also noted that, having set among the lowest and most competitive business tax rates in the world 'we are going to need these advantages more than ever'. If the widely expected post-referendum reduction in economic activity translates rapidly into the decline in tax receipts seen from 2007/8 - 2009/10 inclusive then, leaving aside arguments about austerity and irrespective of who is Chancellor of the Exchequer at the time, we can expect to see HMRC receipts increasing as a percentage of GDP. The Treasury will also have little choice but to increase the tax yield.
If it is decided as a matter of policy to maintain the current low business tax environment in the interest of stimulating the UK economy and also attracting overseas businesses to the UK (or stemming the flow of UK businesses overseas), the choices for the then Chancellor are limited:
- Continue to clamp down on tax evasion and tax avoidance, with more resources (and perhaps new legislation) aimed at tackling the 'tax gap';
- Ensure that the existing tax system is managed as efficiently as it possibly can be to finalise liabilities and collect the correct amounts due as quickly as possible;
- Increase the tax yield through new measures aimed primarily at individuals. Based on the Chancellor’s 28 June statement, if his current policies hold sway then business tax increases are unlikely.The same reasoning suggests that increases in employers’ national insurance contributions might also be limited.
What all that translates to in terms of specific taxes, rates and limits for individuals remains to be seen, but the status quo seems unlikely to continue for long.
If you would like any more information on this issue please get in touch with George Bull or your usual RSM contact.