Gordon Singer: How the Chancellor raised funds for tax credits U-turn

Gordon Singer
Gordon Singer
Have your say

I wasn’t planning on focusing this column on George Osborne’s speech on Wednesday but, in less than a year the Chancellor has delivered an Autumn Statement, two Budgets and now a combined Autumn Statement and Spending Review.

Collectively, that amounts to a quarter of a million words: the same as Harry Potter and The Order of the Phoenix. (I know which I’d prefer to read!). So how could he possibly have found more to announce?

Fairly easily as it happens, with his U-turn on tax credits one of the biggest in recent political history. The legislating Chancellor became the listening Chancellor and totally scrapped his plans to reform tax credits. The cost of doing so is huge, so how did he raise the funds that enabled him to achieve this?

Apprenticeship Levy: The Apprentice Levy announced at 0.5% of staff costs will be offset for most businesses by a £15,000 rebate, but larger employers, with a payroll of more than £3m, will collectively boost the levy to around £3bn by 2019-20.

When you add this to the uncertainty over pension reform, increases in the National Living Wage and changes to the rules on childcare, employers may be wondering just how this will impact on their operating costs and how they should best review their remuneration packages in response.

Housing: Adding to the ‘Help to Buy’ scheme, Mr Osborne is increasing Government support for house-building by investing to build 400,000 new houses to be sold and rented to first time buyers/renters. The Chancellor also wants to remove red tape to encourage the private sector to build more homes.

But there’s a sting in the tail. The Chancellor knows that building enough new houses won’t be easy, so he’s freeing up properties by increasing stamp duty on second homes and certain buy-to-let properties by 3%. This follows hot on the heels of the restriction on tax relief for the cost of borrowing to acquire buy-to-lets.

The idea is to dissuade private ownership of such properties. No surprise then that owners of buy to lets are not happy with this double-barrelled assault. The stamp duty increase doesn’t take effect until April 2016 so perhaps we’ll see a bit more activity in the market before then.

For business: It was always unlikely that we were going to see any major changes in the business taxes arena. Having said that, the Chancellor did continue to emphasise his strong stance on tackling tax evasion and avoidance by increasing penalties for abusive tax schemes.

In addition, allowing small business rate relief for a further year will be popular amongst SMEs.

The plans for business rate retention had already been trailed at Conservative Party Conference. This is an important measure to support regional cities, towns and counties, to be engines for their own growth. Our recent survey found that 92% of council leaders and chief executives thought they should have control over setting business rates, so they will welcome this news.

Northern Powerhouse: Within minutes of standing up, the Chancellor reminded the House that the North is currently growing faster than the South. But anyone playing Northern Powerhouse bingo will have been disappointed, with only two mentions in his 65 minute speech.

Nevertheless, the Chancellor further underpinned his Northern Powerhouse ambition by investing in the long-awaited electrification of the Trans Pennine rail link - not before time. The new £400m Northern Powerhouse Fund will also be welcomed but anyone hoping for further devolution deals was left disappointed. It may be some time before we see an independent Yorkshire.

-For more in depth analysis on the Autumn Statement or Spending Review 2015, visit PwC’s dedicated Autumn Statement site www.pwc.co.uk/budget/spending-review-and-autumn-statement.html

If you have any questions on this year’s Autumn Statement contact Gordon Singer, tax partner at PwC in Yorkshire & Humberside, on 0113 2882117/ gordon.singer@uk.pwc.com