Analysts look to Osborne speech for giveaways

UK ECONOMISTS laid out the possibilities for chancellor George Osborne’s Autumn statement yesterday, with less than a week to go until his speech.

Capital Economics, PwC, BDO and IHS Global Insight issued their own expectations for the announcement, which will set the course for the government’s economic policies in the months ahead.

Most expect the coalition to keep a relatively steady course, with few deviations from the current fiscal framework, but suggest that Osborne may have room for some small giveaways to ease the ongoing pressure on household incomes, given the improved economic climate.

IHS Global Insight’s Howard Archer commented: “A main battleground between the political parties is now the cost of living given that reasonable growth has been restored for the time being at least.”

Capital Economics’ preview said: “With only 18 months before the next General Election, he [Osborne] is under pressure to respond to the message from opinion polls that the government is not receiving much credit for the economic recovery.”

PwC suggests that the Office for Budget Responsibility will trim its estimate for public borrowing by £10bn-£15bn, down from the £120bn it suggested around the March budget.

With such a reduction in mind, PwC suggests that next week’s statement may contain £1bn-£2bn of sweeteners.

Capital Economics say that they also expect a reduction in the borrowing forecast of £15bn, and that new measures might have a £3.1bn impact on revenue. The analysis suggests that commitments at the governing parties’ conferences, like a marriage tax break and free school lunches for infants, will run to around £2.3bn.

The Treasury also confirmed yesterday that a loophole which requires workers to pay job agencies £25 per month once they find work will be closed as part of the Autumn Statement measures.

FIVE PREDICTIONS

HITTING FOREIGN PROPERTY OWNERS
After a rapid hike in house prices, especially in London, some analysts are suggesting that the chancellor could move to implement some form of enhanced capital gains tax on overseas owners. Capital Economics says: “Revenue from such a measure would be unlikely to exceed more than the tens of millions of pounds might risk hitting receipts from stamp duty on properties.”

MAKING A MOVE ON ENERGY
Since the idea has been floated for months, Capital Economics and PwC suggest that George Osborne may move to cut or review the cost of green charges on energy bills, which the Department for Energy and Climate Change (DECC) estimates to be £112 in the UK’s £1,267 average bill this year. However, BDO thinks he may move in another direction, slapping a higher corporation tax rate on energy firms.

ANOTHER HIKE IN THE PERSONAL ALLOWANCE
Another rise in the income tax-free personal allowance may also be on the menu. Deputy prime minister Nick Clegg recently argued that the rate should be raised to £10,500 in the 2015 budget, but a significant loss of revenue may be offputting to the Treasury. PwC added: “The measure would be crowd-pleasing, but it wouldn’t help the lowest paid. Some middle earners are also unlikely to feel the benefit, as increasing numbers are being dragged into the higher rate.”

A TAX AVOIDANCE CRACKDOWN
Following previous announcements, the chancellor could choose to take another look at the government’s policies on tax avoidance. Capital Economics raise the prospect that this could include a restriction in the amount of money that can be stored in ISAs. BDO add that action may be taken on offshore intermediaries. Sean Drury, tax partner at PwC commented: Care will be needed to target anti-avoidance while preventing any unintended consequences for businesses with important commercial reasons for using them.”

ENDING SOME PENSION TAX RELIEFS
The removal of higher rate income tax relief on pension contributions has previously been raised as a way that the government might garner more revenue. Capital Economics estimates that the relief on higher rate earners loses the Treasury £20bn per year, but politically, the move may be seen as a further penalisation of savers. PwC said: “A tempting target in the past as the sums at stake are large, but changes here are often particularly controversial so the Chancellor is unlikely to rock the boat.”

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