Philip Hammond put a brave face on the state of the UK’s public finances in this week’s Autumn Statement. He came out with all the right buzz phrases (Northern Powerhouse, fiscal discipline, new industrial strategy, productivity). And he offered a few bits and bobs to the various groups he wants to like him – a tiny change to the taper for those working and getting Universal Credit, an almost pointless investment bond for pensioners, and a small rise in the minimum wage. But look at it in the round and there is a clear – and not very good – message for MoneyWeek readers.
Brexit or no Brexit, the UK’s public spending is going to continue to be utterly out of control. Our debt relative to our GDP is going to stay at peacetime highs. That means that most of us, one way or another, are going to end up paying a lot more tax. This statement offered a few hints as to how.
From 2017 you will no longer be able to use a salary-sacrifice scheme to pay for your medical insurance, dental insurance, gym membership or a mobile phone via your company. That’s an effective tax rise. If you are drawing down from a pension but also contributing new money to it (hence getting a double bite at the tax relief) you have had your annual allowance cut from £10,000 to £4,000.
If you’ve been managing your tax bill with employee shareholder status (receiving shares in your company with a value of up to £50,000 free of capital-gains tax), you won’t be able to do so any more. If you’ve been keeping it down by running your earnings through a company, you’re on warning: Hammond noted that the Office for Budget Responsibility (OBR) “has highlighted the growing cost to the Exchequer of incorporation”. So there will be a consultation on how to make sure the “taxation of different ways of working is fair between different individuals”.
Finally, there is to be a full-on crackdown on all forms of tax evasion and on avoidance attempts later classified as evasion. Hammond intends to make sure that it isn’t just those who use “highly artificial” tax-avoidance schemes who end up paying nasty penalties, but also those who help them do so.
The UK’s finances might not be as bad as the OBR suggests – they’ve used miserable assumptions to produce miserable Brexit-related adjustments to their forecasts – but even with no adjustments for Brexit, our finances still look pretty bad. So someone has to pay for that. And given that as a MoneyWeek reader you are likely to be solvent and have a relatively high income, it’s likely to be you.
So what do you do? Stay away from any and all dodgy tax schemes. Keep things as simple as possible. Use all obvious tax allowances while you still have them. And finally, be glad that Hammond has decided that today’s Autumn Statement was his last.