Economic growth boosts hopes for tax giveaways

 
Tim Wallace
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GEORGE Osborne could have more room for tax cut giveaways as the economy recovers, analysts predicted ahead of Thursday’s Autumn Statement.

The Office for Budget Responsibility (OBR) is expected to reveal Osborne is ahead of previous forecasts on cutting the deficit, opening the way for him to consider loosening the purse strings.

The OBR is also likely to increase its economic growth forecast for 2013 from 0.6 per cent, made back in March, to 1.4 per cent.

IHS Global Insight’s Howard Archer expects borrowing to come in at around £105bn if current trends hold steady, well below the £120bn the OBR forecast nine months ago.

“Furthermore, the hope is that the trend in the public finances will increasingly improve over the coming months as improved economic activity increasingly feeds through to boost tax revenues and help limit benefit payments,” said Archer.

That means the chancellor could cut taxes to the tune of several billion pounds and still stay ahead of targets set out earlier this year.

One possibility is a hike in the income tax threshold – Nick Clegg has indicated he wants workers to start paying when they earn £10,500 a year.

The Institute of Directors and Taxpayers’ Alliance want Osborne to freeze business rates.

“It is a tax that must be paid in the good times and the bad,” said the Taxpayers’ Alliance. “A further increase of 3.2 per cent that is due next April cannot be allowed to go ahead.”

Professional service firm BDO said one option is to cut employers’ national insurance contributions.

“Recent surveys have indicated that a reduction in employers’ national insurance is the number one recommendation from businesses to encourage them to take on new workers,” it said.

■ Professional services firm BDO hopes the chancellor will cut employers’ national insurance contributions. It believes this is the best way to encourage more hiring.

■ It also suggests Osborne could level the playing field with foreign businesses with a new tax relief on spending on buildings used for business purposes, cutting this competitive disadvantage faced by UK firms.

■ The accountants also think the chancellor could remove the higher rate income tax relief for pensions. They suspect it could be a politically easy way to raise money by hitting the rich.

■ Campaign group the Taxpayers’ Alliance wants big changes to the way stamp duty works on house purchases and to the structure of income taxation.

■ Changing stamp duty from a slab rate to a marginal tax would cut the impact of the tax on buyers, it says, removing the current cliff edge without heavily impacting Treasury revenues.

■ The group is also calling on the chancellor to merge income tax and national insurance. It says this would ease the administrative burden on employers and make the system more open and honest.

■ Accounting and audit group PwC thinks George Osborne could reveal the results of a consultation on social investment tax reliefs this Thursday.

■ Changes could help charities and socially beneficial groups, but only on a small scale – any change is expected to be limited to those organisations with fewer than 250 employees.

■ Meanwhile PwC said a more generous shale gas tax regime would encourage the industry to develop and cut risks for investors.

■ The Building Societies Association (BSA) has called on the chancellor to increase the limit on cash Isas to equal that of stocks and shares Isas.

■ It also wants savers to be able to transfer their funds from stocks and shares Isas to their cash Isas. Currently the move is only possible in the other direction.

■ The industry body also wants the government to do more to encourage more people to save in an era of low interest rates. The BSA is calling for a new savers’ scheme which would see the government match the money put into new Isas.

■ Business group the Institute of Directors wants George Osborne to scrap the 45p income tax band, following on from cutting it from the 50p rate introduced by the previous government.

■ It wants the chancellor to give businesses certainty on taxes with a long-term vision for the replacement of corporation tax, which it says is unsuitable for an era of international and online commerce.

■ And the group also wants to business rates to be frozen ahead of the rates revaluation which has been postponed to 2017.

■ A consortium of airlines, airports and travel groups including British Airways, Virgin Atlantic and Heathrow Airport has combined to urge the chancellor to scrap air passenger duty.

■ Removing the levy on flights could boost the economy by 0.46 per cent in year one alone, the group argues, and keep on adding to GDP all the way up to 2020.

■ In part thanks to the 60,000 extra jobs the groups says the change would generate, they argue cutting the duty would in fact boost government revenues to the tune of £500m in the first year.