The Chancellor, Rachel Reeves must avoid a ‘Del Trotter’ ‘no income tax, no VAT, no money back, no guarantee!’ Budget if she wants to tackle the fiscal black hole.
The Autumn Budget can’t have ’No income tax, no VAT’ increases if Rachel Reeves wants to tackle the fiscal black hole, which is rumoured to be between £40 billion to £60 billion depending on the OBR’s productivity downgrade to come.
Tinkering around with tax policy and freezing thresholds might bring in additional tax, but it makes the tax system more complicated, and is increasingly drawing more non- taxpayers into the tax net. An increase in income tax by 1% would bring in approximately £7 billion. If income tax rate rises are restricted to the 45% higher tax rate payers, this will bring in considerably less tax revenue, as the population is much lower, and the higher rate taxpayers may choose to drawdown less income.
In her last budget the Chancellor promised growth, but businesses are seeing ‘No Money back’ as there is precious little sign of the economy expanding. The last Budget significantly increased Employers National Insurance (NIC) but the effect of that was to increase wage costs disproportionately in the retail and hospitality sector, increasing prices and resulting in increased unemployment.
The Chancellor needs to pull a rabbit out of the hat to give the public something back for all the additional tax they will be paying. This is her most difficult task, as with the lack of headroom she has given herself with fiscal rules, it is difficult to see what she can achieve.
Del Boy’s merchandise was notoriously faulty and afforded ‘no guarantee.’ In the election manifesto, Labour promised no increases in income tax, VAT or national insurance for working people. The increase in employers’ national insurance was considered by many as disingenuous as it affected working people. Whatever Rachel Reeves decides in her next budget, she has to provide a far more stable tax environment and not keep bringing in unexpected tax increases.
Del Boy was known for not paying tax. The tax gap in the UK per the latest HMRC report was £46 billion, of which 14% of that was evasion and 5% the hidden economy. A focussed effort on bringing the ‘Del Boys’ of this world to account, by resourcing HMRC appropriately and effectively could end up being Cushty for the Chancellor and bring in additional tax.
Del Boy himself may be affected in the budget by increased excise duties on his cigars, albeit he could be using the referenced black economy for his cigar purchasing and by increased fuel duty on his increasingly fuel inefficient Robin Reliant.
Andrew Sanford is a partner at the audit, tax and business advisory firm, Blick Rothenberg
